Margin Calls

Definition ∞ Margin calls are demands from a broker for additional funds or assets to cover potential losses in a leveraged trading account. These occur when the value of an investor’s collateralized assets falls below a predetermined maintenance margin level, indicating insufficient funds to cover the risk of open positions. Failure to meet a margin call typically results in the forced liquidation of assets by the broker to bring the account back into compliance. This mechanism is designed to protect both the broker and the market from excessive counterparty risk during periods of high volatility.
Context ∞ In cryptocurrency markets, margin calls are frequently reported during sharp price declines, leading to cascading liquidations that can exacerbate market downturns. News often covers the aggregate value of liquidations triggered by margin calls, providing insight into market leverage and the potential for further price instability. Understanding their dynamics is crucial for comprehending rapid market movements and the financial pressures on leveraged traders.