How Margin Calls Happen and How to Avoid Them
A margin call is your broker closing your positions because your balance can no longer cover the risk. We walk through the math with a concrete example, then share the risk rules we actually use: position sizing, stop placement, and why correlated pairs count as one trade.
Leverage is borrowed exposure: the exchange lets you control a position worth far more than your balance. The price of that convenience is the margin call. When your balance can no longer cover the position's potential loss, the exchange closes it for you, at market, whether you like the price or not. In crypto this is usually called liquidation, and it is the single most common way new traders lose their whole account.
The math, with a concrete example
John has $1,000 and uses 100x leverage to open a long position worth $100,000. Every price move in the underlying is now amplified 100 times relative to his own money. If the price rises 10%, his position gains $10,000. That is ten times his account, and it is the part everyone imagines.
The other side is less popular. If the price falls just 1%, the position loses $1,000, which is his entire balance. The exchange will not wait for that to happen. Somewhere before the 1% mark it liquidates the position to protect the borrowed portion, John's margin is gone, and he gets a notification e-mail instead of a trade. A 1% wiggle is nothing in crypto; many pairs move that much in a minute. At 100x, John was never trading. He was buying a lottery ticket with bad odds.
The rules that prevent it
Risk a fixed, small fraction per trade. We never risk more than 2% of the account on a single trade, and 1% is the better number while you are learning. "Risk" means the amount you lose if your stop is hit, not the position size. You can open a $1,000 position with a $1,000 account, as long as the distance to your stop-loss puts only $10-20 at risk.
Always use a stop, and place it before you enter. Decide where the trade is wrong first, then size the position from that distance, not the other way around. Traders who size first and look for a stop later end up with stops that are either too tight to survive noise or too wide to survive being hit.
Mind the losing-streak math. Four losing trades at 5% risk each cost you 20% of the account, and getting back to break-even from there requires a 25% gain, because you are growing a smaller base. At 1-2% risk the same streak costs 4-8%, which any decent strategy recovers from. Even good traders take four or five losses in a row. Your sizing has to assume it will happen, because it will.
Correlated positions are one position. In crypto nearly everything moves with BTC. A long on BTCUSDT and a long on ATOMUSDT are not two independent 1% risks; when BTC drops, both stops get hit together. Either treat correlated trades as sharing one risk budget, or accept that your real per-event risk is the sum.
Don't trade the drawdown. The most dangerous moment in trading is right after a loss, when the urge to win it back makes positions grow. That is no longer trading. A casino at least serves drinks. If you notice yourself sizing up to recover, stop for the day. The market reopens tomorrow. Accounts don't.
None of this is exciting, which is exactly why it works. The traders who survive long enough to get good are the ones a margin call never surprises.