Margin Call

A margin call is the broker's demand that you add collateral or close positions when the value of your margin account falls below the maintenance requirement. You borrowed to amplify exposure; the market moved against you; the cushion is gone. The call is binary: meet it or get liquidated. Meeting it means selling other assets or injecting cash under stress. Failing it means the broker closes your positions at market prices — often the worst prices — and you lock in losses you might have ridden out with no leverage.

The mechanism is simple. You post initial margin to open a position. The broker sets a maintenance margin level, typically below initial margin. As the position loses value, your equity in the account (assets minus loan) shrinks. When equity drops to or below the maintenance level, the broker issues a margin call. You have a short window — often same day — to restore equity above the threshold. If you don't, the broker sells your collateral to protect its loan. In volatile markets, that selling can cascade: forced selling pushes prices further against you and triggers more margin calls. The 2008 crisis and the 2020 March selloff showed how quickly leverage turns into a death spiral when margin calls hit at scale.

The mental model extends beyond brokerage. Any situation where you have borrowed against an asset or future cash flow, and a drop in value or income triggers a demand for more collateral or repayment, is margin-call dynamics. Real estate with a non-recourse loan is different; a business line of credit tied to receivables or inventory is not. When the asset backing the loan falls, the lender can call. Your job is to stay well above the trigger point or avoid the structure entirely.