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When trading CFDs on PrimeXBT, leverage plays a crucial role in determining the amount of margin (your personal funds) required to open a position.
What is a Margin Call?
A Margin Call is a warning that liquidation may occur if the market continues moving against your positions.
PrimeXBT will alert you when your available margin has dropped to a critically low level.
Key points about Margin Calls:
A Margin Call is not an immediate closure of your positions; it’s an opportunity to take action.
To avoid liquidation, you can add more funds to your trading account or close some positions to free up margin.
Pro tip:
Even if you’re confident in your trade, maintaining a safety margin is highly recommended. This can help you navigate temporary market fluctuations without risking liquidation.
While PrimeXBT strives to notify you of a Margin Call promptly, we cannot guarantee it will be delivered immediately after your margin drops below the required level or before liquidation occurs.
PrimeXBT makes it simple to calculate the required margin with the following formula:
Required Margin = Value of the trade / Leverage
Calculating required margin
Here’s an example to clarify how this works:
Scenario: Assume Bitcoin (BTC) is priced at $67,000, and you want to open a position worth 1 BTC using 200:1 leverage.
Calculation:
Required Margin = $67,000 / 200 = $335
This means you need $335 (equivalent to 0.005 BTC) to open the trade.
Shortcut: Use the ‘Margin impact’ field
Instead of manually calculating, you can rely on the ‘Margin impact’ field within the platform. This feature automatically calculates the margin required to open your desired position, saving you time and minimizing errors.
Why do I need to maintain the minimum required Margin?
Maintaining a sufficient margin is essential to keep your positions secure and avoid liquidation. Using 100% of your available margin can leave your trades vulnerable to sudden market movements. A well-maintained margin acts as a buffer, ensuring you can withstand potential losses without risking immediate closure of your positions.
How does Liquidation work?
Liquidation is the process of closing your open positions automatically when your account balance (available margin) drops to 0%.
What happens during Liquidation?
All your open positions are closed as market orders.
Any profit or loss (P/L) from these trades is settled, and your account balance is updated accordingly.
The margin previously tied to these positions is unlocked, meaning you can use it to open new trades or withdraw funds.
Tips to avoid Liquidation:
Monitor your positions actively, especially during high market volatility.
Keep a buffer of funds in your trading account to handle unexpected price swings.
Use risk management tools like stop-loss orders to limit potential losses.
By understanding how margin requirements, margin calls, and liquidation work, you can better manage your trades and minimize risk. PrimeXBT provides tools and notifications to assist you, but proactive account management is key to long-term benefits.
To prevent Liquidation and manage the risks, we highly recommend using Stop Loss and Take Profit protection orders.