What is a margin call?
If you trade using a margin account with a broker then you’ll get a margin call if the value of money or securities in your account falls below a certain level.
You borrow money from the broker when you buy on margin, so the call is a request to put in more money or sell stock to raise your collateral balance.
Where have you heard about margin calls?
They happen when stock values fall. If stock bought on margin with a broker falls below a certain value then you drop below the minimum maintenance margin you agreed with the broker.
What you need to know about margin calls...
Brokers make margin calls to reduce the risk of an investor defaulting on the loan they got under a buying-on-margin agreement.
In extreme cases, a broker may be forced to sell investor’s securities, or even take legal action, if they don’t comply with margin call rules.
While margin trading offers the potential for bigger returns, it also increases the risk of losses.