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What is a Margin Call?
What is a Margin Call?
Updated over a week ago

A margin call in a crypto-backed loan occurs when the value of your cryptocurrency collateral drops, causing your loan-to-value (LTV) ratio to exceed Arch's threshold. To maintain your loan, you'll need to either add more collateral or repay part of the loan to bring the LTV back to the cure threshold.

How Does a Margin Call Work?

  1. Triggered When LTV Exceeds Threshold: If the value of your collateral drops and your LTV ratio exceeds the margin call threshold (e.g. 70% for BTC), you’ll receive a margin call.

  2. 24-Hour Cure Period: Once the margin call is triggered, you have a 24-hour window (cure period) to take action. This period starts immediately, and you’ll be notified via email and through your user dashboard. During this time, you can:

    • Deposit more collateral: Add more crypto to lower the LTV ratio.

    • Repay part of your loan: Reducing your loan amount will also bring the LTV back in line.

  3. Partial Liquidation: If you don’t meet the margin call within 24 hours, the platform will partially liquidate your collateral to bring the LTV back to the cure threshold for that cryptocurrency (e.g. 60% for BTC). The cure threshold is always the same as the maximum starting LTV.

How Will You Be Notified?

  • Email Notification: You'll receive an email as soon as the margin call threshold is reached, letting you know the LTV ratio, the amount you need to repay, or the collateral you need to add.

  • Dashboard Visual: Your account dashboard will also display the margin call, showing exactly how much collateral to top up or how much of the loan you need to repay.

Can the Cure Period Be Extended?

In certain cases, you can request an extension of the 24-hour cure period. If approved, this gives you additional time to either deposit more collateral or repay part of the loan before a partial liquidation occurs. However, if the liquidation threshold is hit, liquidation will proceed without an extension.

How to Avoid a Margin Call

To minimize the chances of facing a margin call, consider the following strategies:

  1. Monitor Your LTV Ratio: Regularly check the LTV ratio of your loan, especially during periods of high market volatility. This can help you stay ahead of potential margin calls and take early action if your collateral value drops.

  2. Consider a Lower Starting LTV: Starting with a lower LTV ratio provides a buffer against market fluctuations. For example, instead of taking a loan at the maximum LTV allowed (e.g., 60% for Bitcoin), you could start with a lower ratio. This gives you more room before a margin call is triggered.

By actively managing your LTV ratio and considering a more conservative starting point, you can better safeguard your collateral and reduce the risk of liquidation.

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