Margin Call
Table of contents
Margin Call occurs when the value of an investor’s margin account falls below the required maintenance margin. This happens when the value of the assets in the account declines, prompting the lender to request more funds or assets to maintain the position.
How It Works
If an investor borrows money to trade and the value of their positions decreases, the lender may issue a margin call. The investor must either deposit more capital or liquidate positions to cover the margin shortfall.
Why It Matters
A margin call ensures that borrowers maintain enough collateral to cover potential losses. It helps prevent the lender from taking significant losses, but can also force investors to sell assets at unfavorable times.