Collateral Call

A collateral call is a demand from a lender or a derivative exchange for a trader to deposit additional assets into their margin account. This occurs when the value of the collateral currently held in the account falls below a predetermined maintenance margin level due to adverse price movements in the underlying asset.

In the context of cryptocurrency and derivatives, this is a critical risk management mechanism designed to protect the protocol or the counterparty from default. If the trader fails to meet the call by adding funds, the protocol may automatically liquidate their positions to recover the debt.

It acts as a safety valve to ensure that leverage remains collateralized even during periods of high market volatility. Essentially, it is a notification that the trader's equity is insufficient to support their current exposure.

By enforcing these calls, exchanges maintain systemic integrity and prevent cascading liquidations. Traders must monitor their margin health closely to avoid these forced events.

It is a fundamental component of the leverage lifecycle in digital asset trading.