If a margin trader's position is at a loss, they will cover the loss with funds in the margin trading wallet. The funds in the margin trading wallet serve as collateral. The initially required margin to open a position is 30% of the value of the position size. For instance, to open a long position worth $3,333 USD, an initial margin of $1,000 USD is required.
A trader's position is forced liquidated when the net value of his account falls below the required margin (15% of the value of the margin position). For instance, if a user with a position of an initial value of $3,333 USD and $1,000 USD collateral would lose $500 USD or more, the position will automatically be force-liquidated.
Assume the BTC price is $250 USD/BTC and you hold a balance of $1,000 USD in your margin trading wallet. This would allow you to open a margin long position of (up to) $3,333 USD worth of BTC (3333 / 250 = 13.332 BTC). The $1,000 USD in your margin trading wallet serve as collateral in case the trader loses money on the position. All additional funds needed on top of the $1,000 USD collateral in order to be able to open the position ($2,333 USD) will be borrowed from liquidity providers. The minimal required margin is 15% of the value of the position: 15% of $3,333 = $500 USD.
When the net value of the account reaches $500 USD, the position will be force-liquidated. This will be the case when the loss on the position is $500 USD; this happens when 13.332 * BTC price = 3333 - 500 => when the BTC price is $212.496.
Let's assume the price drops to $212.496 USD/BTC. The position will be force-liquidated: after forced selling of the 13.332 BTC @ $212.496, there will be $2,833 USD available for repaying the borrowed $3,333 USD. The losses will be covered by the $1,000 USD serving as collateral in the trading wallet. After forced liquidation, the trader will end up with a margin trading balance of $500 USD, and the borrowed $3,333 USD margin funding will have been returned to the liquidity provider.
Note: These numbers will vary a bit due to fees and interest payments. Also, a margin call triggers a market order, so the actual liquidation price can be a bit lower than $212.496 in the example, depending on available bids in the order book. This could result in a loss a little bit greater than $500 USD, but this will never be a big difference. In theory, we will never allow this to happen, the margin trader will be able to cover all losses on his position up to the point his account's net value is 0%; that is until the BTC price drops to $174.992 USD/BTC (2333 / 13.332 = 174.992).
