A margin call is a demand from your broker to add money or securities to your trading account because your losses have become too large relative to the amount you borrowed.

Quick definition

When you trade using margin , you’re borrowing part of the money used to buy investments (like stocks) from your broker. If those investments fall in value so much that your own equity in the account drops below a required level (called the maintenance margin), the broker issues a margin call.

In plain terms:

“Your account has lost too much. Put in more cash or we’ll close your positions.”

How a margin call works

  1. You open a margin position
    • You put in some of your own money (equity).
    • You borrow the rest from the broker to buy more securities than you could with cash alone.
  1. Prices move against you
    • The value of your securities falls.
    • Your equity (your stake after subtracting the loan) shrinks.
  1. Equity drops below maintenance margin
    • Brokers and regulators set minimum equity levels you must maintain (maintenance margin).
 * If your equity falls below that threshold, you are “in margin call.”
  1. Broker demands action
    • You may be asked to:
      • Add cash
      • Deposit more securities
      • Or reduce/close positions so the risk falls back in line.
  1. If you don’t respond in time
    • The broker is usually allowed to sell your securities without asking again, and can choose which ones to sell, to bring the account back above the required level.

A simple example

  • You deposit 5,000 of your own money.
  • You borrow another 5,000 from your broker.
  • You now buy 10,000 worth of stock on margin.

If the stock falls and is now worth 7,000:

  • You still owe the broker 5,000.
  • Your equity is now only 2,000.

If your broker’s maintenance margin requires, say, 30% equity, then at 7,000 total value you’d need 2,100 of equity.
You only have 2,000, so you’re below the requirement → margin call.

The broker will then ask you to:

  • Add 100 or more in cash or
  • Reduce your position so your equity percentage is back above 30%.

Why margin calls matter

  • They are a risk control tool for brokers, making sure the borrowed money is protected.
  • For traders and investors, they are a warning that:
    • You have taken on high leverage.
    • Losses are large enough that you may be forced to sell at a bad time.

In fast markets (like during big crashes), margin calls can trigger more forced selling, which can make prices fall even faster across the market.

How to avoid a margin call

  • Use less leverage (borrow a smaller percentage of your total position).
  • Set stop-loss levels so losses don’t snowball.
  • Keep extra cash or unborrowed securities in the account as a buffer.
  • Monitor your margin level frequently, especially in volatile markets.

Information gathered from public forums or data available on the internet and portrayed here.