Liquidation Margin
Candlefocus EditorLiquidation margin is the minimum amount of collateral that a broker requires to ensure that the trader does not default on their loan. This amount is typically up to 50% of the purchase price of the security or futures contract. It is typically set by the broker as part of the trading agreement with the client. This is a separate amount from the margin deposits made by the trader.
If the value of an open position moves in the opposite direction from what the trader expects, the liquidation margin will decrease in value. If the liquidation margin falls below the required amount, the broker may issue a “margin call” to the trader. This call requests either additional collateral or a reduction in the open positions in order to bring the liquidation margin back up above the required amount.
In recent years, brokers have begun to offer “margin management” services to clients. These services allow traders to track their liquidation margin in real time and receive notifications when their margin levels drop below the required amount. Additionally, the services can even provide automatic adjustments to the required liquidation margin in order to protect the trader’s positions.
Liquidation margins are an important part of trading securities and futures. They can help traders manage their risk and remain in compliance with their trading agreement. It is important for traders to understand the role that liquidation margins play in their trading account, as well as the importance of monitoring their liquidation margin in order to avoid margin calls from their broker.