What Is a Margin Call? Simple Explanation and How to Avoid It
A margin call is a warning: your account doesn't have enough money to keep a leveraged position open. If you do nothing, the position will be closed by force.
How it works
When you trade with leverage, part of the position is funded by the broker or exchange. Your money acts as collateral — that's the margin. If the price moves against you, the collateral shrinks. When it drops below a set level, you get a margin call.
Example. You have $1000 and open a $5000 position (5× leverage). The price falls 10% — that's a $500 loss, half your collateral. A little more, and you'll be asked to add funds.
What happens next
- You add money or reduce the position.
- You do nothing — the position is closed by force; that's liquidation.
How to avoid a margin call
- Always set a stop-loss. It should trigger well before a margin call.
- Use low leverage or none at all — see leverage explained simply.
- Don't add to a losing position just to "wait it out."
How margin trading works is covered in the lesson on margin and short selling.
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- A margin call means your collateral isn't enough.
- Next comes a top-up or a forced close.
- A stop-loss and low leverage protect you from margin calls.
Frequently asked questions
Can you get a margin call without leverage?
No. If you bought an asset with your own money and no loan, your position can't be closed by force.
Should I add funds when I get a margin call?
Not necessarily. It's often wiser to close or reduce the position: adding to a loser increases your risk.
Are a margin call and liquidation the same thing?
A margin call is a warning; liquidation is the forced close itself. On crypto exchanges there may be no warning at all.
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