Margin Call

Taking out loans in the crypto space is gaining more popularity with time. The borrowers do not need credit checks, nothing goes down in their credit history, and neither do they have to sell the crypto. Collateralizing loan in the crypto space is super simple and is a great way to secure a cash loan without going down the traditional banking route. However, crypto is not beyond volatility, and sometimes, these cryptos are capable of making incredible moves up to $1000+. Such moves might create a difference in the outstanding loan leading to a situation called a Margin Call.

A margin call is basically the liquidation of digital assets. Being margin called means the lender must sell their collateralized assets in order to cover the value of the loan once the loan-to-value ratio reaches the liquidation threshold. The ratio which determines the risk of a loan is known as the loan-to-value (LTV) ratio. Different lending platforms have different liquidation thresholds but most of them generally are in the LTV range of 90%.

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