Margin Call Calculator # Forced Liquidation # maintenance rate
Calculate the current maintenance rate and when to add margin for financial products with loans/leverage. This feature can also be used to calculate the forced liquidation price in perpetual futures contracts.
What is Margin Call?
A: It's when you're forced to sell a financial product you bought with borrowed money because its value has dropped too much!
There are many leveraged financial products and tools on the market that can be used to amplify your earnings, but they also come with greater risks. When an investor hands over collateral to a service provider and borrows money to buy a product worth more than the collateral, it's called "margin trading." For example, if a stock is originally worth $10 and you want to buy 1,000 shares, you need $10,000. If you use 2.5 times leverage, you only need to pay $4,000 in collateral.
When engaging in margin trading, there's a value that you must keep in mind, called the "maintenance margin," or simply the "margin."
The simplified formula is: Current Total Market Value / (Margin Amount - Additional Collateral)
- Current Total Market Value: The current market value of your holdings, which changes with market prices
- Margin Amount: The money you borrowed from the service provider
- Additional Collateral: The extra collateral you added later
In the above example, the maintenance margin at the time of the margin purchase was: 10,000 / 6,000 ≈ 166.7%
Most service providers set a minimum maintenance margin for their products. When the margin falls below this value, you'll receive a notice to add more collateral.
When the margin falls below the minimum maintenance margin, you'll receive a notice to add more collateral and be told how many days you have to do so. If you don't add more collateral by then, the product will be sold at market price, which is commonly known as a "margin call"!
Some futures products (e.g. perpetual contracts for cryptocurrencies) don't have a maintenance margin. When the margin falls below 100%, the position will be liquidated and your account balance will be zero.
How much collateral do you need to add?
A: At least enough to bring the margin above the minimum maintenance margin, but don't think that's all you need to do!
Some service providers will still put you on an observation list even if you add more collateral to bring the margin above the minimum maintenance margin. You'll need to add more collateral until the margin is above a certain value. For example, if the minimum maintenance margin for a stock is 130%, and you've fallen below that value and added more collateral, but don't have enough money to bring the margin back up to 166%, you'll need to add more collateral on the same day if the margin falls below 130% again, or your position will be liquidated.
Editor: If it's not working, cut your losses and move on...
If you're really starting to see a bearish trend, stop loss and exit the position.
Read the blog post here: [Tool Introduction] Margin Maintenance Calculator - Helps You Calculate Margin Call Amounts