The moment when one gets the unwelcome margin call is the worst moment any crypto trader may experience. Ordinarily, it puts one under great financial pressure if not properly managed. Knowing what is a margin call and how to avoid a margin call will be very relevant to any trader dealing with margin trading.
When Does a Margin Call Occur?
A margin call is issued whenever the collateral provided by the trader reaches below the required level of the maintenance margin. This normally happens when the market is moving opposite to the trader’s position and, as a result, shrinking equity in their margin account. In such a case that a margin call is issued, he either has to bring up the required margin by depositing more money or liquidate his positions to cover the shortfall.
Facing the Call
Although a margin call is not particularly exciting, one always feels better during a quick and decisive course of action. If you are caught in one, there may be a couple of things you can do on Pi42 to replenish the account balance to the required level of the margin so you don’t get your position forcefully liquidated.
Preventing Margin Calls
- Avoid Margin Call: Manage your risk, and do not court margin calls. This thus sets the next steps to ensure protecting yourself from the margin call and keeping your margin account healthy:
- Stop-Loss Orders: These are placed to automatically close out your positions at a certain price, thus limiting your potential losses and preserving your margin.
- Diversification: Spread your money across several various assets to prevent the risk of incurring huge losses on a single security.
- Monitor Your Account: Keep an eye on your account balance compared with the margin levels and market conditions to always be above the minimum margin requirement.
- Avoid Over-Leveraging: It means that one should not over-leverage. Don’t take more risk than you can afford by borrowing more than what you are willing to and can afford to lose.
- Stay Informed: Staying updated about market news and trends helps to gain a better positioning about trading decisions and given possible future moves that the market may take.
Resources available on Pi42 to Learn More About Margin Trading
Pi42 has tons of resources to help any trader understand and leverage margin trading. First, check our Margin Trading 101 guide for a detailed review of concepts and strategies. Then, learn what you can do regarding risk management effectively from our Risk Management Tips. Finally, take a little wisdom from some advanced insights through our blogs.
These will help in further enhancing knowledge and skills in margin trading for effective risk management, to avert these pitfalls of margin calls.
Conclusion
Conducting the process of managing a margin account requires diligence and being very proactive to ensure one avoids margin calls. One of the major strategies is keeping a constant review of your positions and adjusting them accordingly based on market conditions. This includes the setting of real targets and being ready to get out of position if not working in your favor.
What is more, by using margin calculators, one can be aware of the potential risks and rewards of their transactions. Such calculators will help traders to judge the amount of margin needed for a particular trade and how the prices might affect their margin levels. This proactive approach, therefore, makes them better informed in their decisions and hence avoids surprising calls for margins.
Another critical point about Margin Accounts is how traders understand the impact from fees and interest charges. Often, margin trading literally means that one is borrowing money, and it will all add up. The trader should account for this in the plan so his planned profit outweighs and earns more than these expenses.
In margin trading, education and continuous learning are as important. Changes within markets are dynamic, and changes within them keep happening; thus, knowledge regarding emerging strategies, new tools, and market developments seems to be very essential for traders. Pi42 offers rich educational resources, including webinars, video tutorials, and articles, helping traders improve their knowledge and skills.
It is also important that a trader has a very clear risk management plan set up. It should include actions to take on different market scenarios, reaction to margin calls, rebalancing the portfolio, or taking profit/cutting losses. Having it predefined can minimize the place of emotions in decision-making and help the trader maintain his or her discipline.
One of the best ways to get support and insight is through networking with other traders and joining trading communities. Interacting with peers allows traders to share experiences, discuss strategies, and learn from others’ mistakes and successes. Most platforms like Pi42 have inbuilt community forums or social features for these interactions.
Successful margin trading means staying sane over the long term, and managing stress. Between the awful risks and fast tempo, traders should thus invest in keeping themselves remaining cool: this may mean taking breaks at regular intervals, practicing mindfulness, or having time away from the markets and trading activities in general.
DISCLAIMER : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.