Margin call

A demand from a lender for more cash or collateral because the value of a leveraged position has fallen far enough that the equity in it is below the required level.

Example

A position falls to the point where the account's equity drops under the broker's threshold; the holder must deposit funds quickly or the broker sells the position.

Important

Calls cluster in exactly the conditions where your other resources are also under strain, so plan on the basis that the cash you intended to meet one with will not be available.

Related terms

• Leverage — Investing with borrowed money so that you control more of an asset than your own capital would buy. Gains and losses are both multiplied by the same factor.
• Maintenance margin — The minimum share of a leveraged position's current value that must be your own equity rather than borrowed money, before the lender can demand more or close the position.
• Forced selling — Selling because you have to rather than because you chose to - triggered by a lender, a redemption request, or an unrelated need for cash.

Lessons that explain it

• Big percentages on a small bet, and most bets expire worthless — Option payoffs are lopsided: a bought option can multiply its premium or lose all of it, and the price usually has to move a long way just to break even. (12 min)
• Appraising one position: maximum loss, break-even, cost and what you are really betting on — Before any derivatives trade, write down five numbers. If you cannot fill them in, you are not evaluating a position - you are guessing. (11 min)
• Unlimited loss on the short side, spreads on every trade, and tax rules that vary by contract — Derivatives add risks shares do not have - assignment, margin calls, unlimited short losses - plus higher trading costs and tax treatment that differs by product and country. (13 min)
• Price moves, interest differences and leverage - in a market where one side's gain is the other's loss — Forex returns come from exchange-rate moves and interest-rate differences, magnified by leverage, in a market that is roughly zero-sum before costs and negative-sum after them. (12 min)
• Leverage, gaps, the broker itself, and a tax treatment that depends on the product — The biggest forex risks are leverage and sudden gaps. Costs include spreads and overnight financing, and tax treatment varies widely by product and country. (11 min)
• Leverage: the same asset, a different outcome — Borrowing to invest does not change what you own. It changes how far the asset can fall before the decision is taken out of your hands. (11 min)

All 578 terms in the Investing glossary