What is a Margin Call?
A margin call is a demand from a broker or exchange to a trader to deposit additional funds or securities so that the margin account is brought up to the minimum maintenance margin requirement. The margin call is triggered when the account value falls below the broker’s required maintenance margin.
Margin call, maintenance margin, broker, exchange, trader, deposit, funds, securities
What is Liquidation?
Liquidation is the process of selling off assets in order to pay off outstanding debts. In the context of margin trading, liquidation is the process of closing out a margin position when the account value falls below the maintenance margin requirement.
Liquidation, assets, debts, margin trading, closing, position, account value, maintenance margin
How to Handle Margin Calls and Liquidation Events on Bitfinex?
Bitfinex is a cryptocurrency exchange that offers margin trading. When trading on margin, it is important to understand the risks associated with margin calls and liquidation events.
When trading on margin, traders borrow funds from the exchange to increase their buying power. If the value of the position drops below the required maintenance margin, the exchange will issue a margin call. The trader must either deposit additional funds or reduce the size of the position in order to meet the margin requirement.
If the trader does not meet the margin requirement, the exchange will liquidate the position. The exchange will close out the position and use the proceeds to repay the loan. The trader will be responsible for any losses incurred as a result of the liquidation.
In order to avoid margin calls and liquidation events, it is important to understand the risks associated with margin trading and to use appropriate risk management strategies. It is also important to monitor the margin account closely and to ensure that the account value remains above the maintenance margin requirement.