What are margin and liquidation?

Summary
This article explains the role of margin in margin trading, what happens during a liquidation, and how you can manage your funds to protect your open positions.

What is margin?

Margin is the amount of euros (EUR) you commit when opening a margin position. It acts as a safety buffer to cover potential losses and trading fees.

With margin trading, you can open a larger position than your own funds by using leverage.

• Position size = total trade exposure
• Margin = your own funds used as collateral

Example (5x leverage):

• You open a €1,000 position
• You provide €200 as margin out of your own funds
• The remaining €800 worth of crypto is effectively borrowed

What is liquidation?

If the market moves strongly against your position, your margin may no longer be sufficient to safely support the trade. If your position reaches its liquidation price, Bitvavo will automatically close the position.

• For Long positions: Liquidation happens if the asset's price drops too low.
• For Short positions: Liquidation happens if the asset's price rises too high.

This automatic process is built to protect you from losing more than the funds you initially committed, while also keeping the trading platform secure.

How to prevent liquidation

You will receive a notification if your position's Health Ratio drops close to the required minimum level, warning you that you are getting closer to your liquidation price. To protect your trade and avoid the 2% liquidation fee, you can take two actions:

• Close the position manually: You can choose to manually close your position before the price hits the liquidation level. This limits your losses and prevents the extra 2% fee from being charged.
• Add more margin: You can give your trade more room to handle market fluctuations by adding extra euros to your safety buffer.

App

1. Go to your open position in the app.
2. Tap "Modify".
3. Select "Add margin".
4. Enter the euro amount you wish to add.