What is Margin Call and how to avoid it?

Trading can be a real gold mine. You can make a 20-30% profit per month, so your capital will grow twice per annum. But if there’s no million in your pocket, you can’t earn fast. In this case, there is trading with leverage, but it also has its drawbacks.

We’ve already written about margin trading. Today we’ll fill the gap about what is Margin Call. 

What is Margin Call

Sometimes the system on BCNEXT Broker is forced to close your deal. This situation is called a Margin Call. Most often, leverage traders facing this situation. It looks as follows. The broker gives the trader a loan in an amount that exceeds the amount of the trader’s capital involved in this deal. A trader uses these assets to keep his position active. If the deal ends successfully, then after closing the position, the BTCNEXT broker gets back its funds plus commissions.

However, if an open position becomes unprofitable, events develop differently. The broker carefully monitors the state of the trader’s capital. After losses approaching the size of the deposit, the deal is forced to be closed after making a call (Margin Call). So, the Margin Call notifies the trader that the balance is at a critically low level.

Automatically closing of a deal by a BTCNEXT Broker system is quite understandable — when losses approach the amount of capital, the broker’s credit funds are at risk. Margin Call is necessary — it does not allow the trader to get into debt.

In case of receipt of this signal, a trader must deposit more money. Otherwise, all current deals will be closed by the broker company.

When the position is closed after Margin Call, the dealer unfreezes the blocked funds in the trader’s account, and they again become available for trading as collateral for new deals. Our advice is never to reach the Margin Call level. To do this, close unprofitable positions earlier than profitable ones, observe the basic rules of money management. But the cryptocurrency market is known for its increased volatility, so you need to be prepared for any surprises!

How to avoid a Margin Call

If you are confident in your abilities and want to take a risk by starting to trade on BTCNEXT Broker with leverage, consider options to Avoid Margin Calls. For our part, we recommend the following:

  1. Set Stop Loss by positions. To prevent losses below a certain level, a Stop Loss is set. It automatically closes a position if it reaches a specific point.
  2. Open a limited number of deals. It is challenging to keep track of the large volume of deals, and you can miss the moment when the positions go negative and waste the entire capital.
  3. Try to trade only on your funds. Trading on credit creates the illusion of a positive balance, although it has long been in the red.
  4. Assess your risks when placing positions, do not rely on chance. Trading requires a lot of knowledge, but what more important is not a lottery!
  5. Use the diversification of your portfolio. One of the leading trading rules — “do not put all eggs in one basket” — works here too.

Don’t meet a Margin Call

Margin trading is a prospect; we cannot but agree with this. Only these prospects act in both directions: you can either get rich or lose everything. In order not to face the second scenario, it is worth approaching trading seriously. And most importantly, never meet with Margin Call.

The first thing to do – study Risk Management, as well as follow all the rules described above. That’s what we are for you!

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