Margin Call
A margin call is a demand from a broker that an investor deposit additional funds or securities into a margin account to bring the account's equity back above the required maintenance margin level after market losses have reduced it below the minimum threshold.
A margin call is triggered when the value of securities in a margin account declines to a point where the investor's equity — the market value of the securities minus the outstanding loan balance — falls below the broker's required maintenance margin. Under FINRA Rule 4210, the minimum maintenance margin for long equity positions is 25 percent of the current market value, though most major retail brokers set higher 'house' requirements, often in the 30–35 percent range.
When a margin call is issued, the investor typically has two to five business days to respond, though in rapidly declining markets a broker may demand immediate action or act unilaterally. To satisfy a margin call, the investor can: (1) deposit additional cash into the account, (2) deposit additional marginable securities as collateral, or (3) sell existing positions to reduce the loan balance and raise the equity ratio.
If the investor does not respond in time or the broker determines that rapid action is needed to protect the loan, the broker has the right — specified in the margin agreement — to sell securities in the account without the investor's consent or prior notice. The broker selects which securities to sell and is not required to choose the most tax-efficient or strategically optimal positions. This forced liquidation can result in selling at unfavorable prices, potentially at the bottom of a market decline.
The risk of forced liquidation is one of the most significant practical dangers of using margin. A sharp market decline can simultaneously reduce the value of margined securities and trigger margin calls across many investors at once, creating a self-reinforcing cycle in which forced selling drives prices lower, triggering further margin calls. This dynamic was observed during multiple historical market crises, including the 2008–2009 financial crisis and the March 2020 COVID-19 market disruption.
Investors using margin accounts should monitor their equity ratio continuously, understand exactly what their broker's house maintenance requirements are, and maintain a buffer of uninvested cash or unencumbered securities to meet potential margin calls without being forced to sell positions at inopportune times. The margin agreement, which investors must sign before a margin account is opened, discloses all relevant terms and the broker's liquidation rights.