Margin call

When you trade with borrowed money or leveraged products, the broker requires your equity, the value of your positions minus what you owe, to stay above a minimum, often called the maintenance margin. If falling prices push equity below that level, the broker issues a margin call. You must then deposit cash or securities, or reduce your positions, to restore the required level, usually within a short deadline. If you do not, or if prices are falling fast, the broker can close some or all of your positions without further notice, at whatever prices are available.

Margin calls tend to arrive at the worst possible time, after prices have already fallen, and they can turn a paper loss into a realised one by forcing sales near the bottom. When many leveraged investors face calls at once, forced selling can push prices lower and trigger further calls, which is how margin calls can deepen market crashes. Losses can exceed the money you originally put in: if positions are closed after a sharp fall, you may still owe the broker money. Borrowing less than the maximum allowed leaves more room for prices to move before a call arrives.