What Is a Margin Call?
A margin call is a demand from a brokerage firm that an investor add money or securities to a margin account, or reduce the borrowed amount, because the account's value has dropped below a required level. It occurs when an investor has bought stocks partly with money borrowed from the broker and falling prices have left too little value to cover that loan safely.
How It Works
When an investor buys on margin, the broker lends part of the purchase price, and the purchased securities serve as collateral for the loan. The investor's equity is the market value of the holdings minus the amount owed to the broker. Brokers require equity to stay above a maintenance margin, which is a minimum percentage of the account's total market value. If prices fall and equity drops below that minimum, the broker issues a margin call.
The investor usually has a limited time to respond. Common options include depositing cash, transferring in fully paid securities, or selling some holdings to repay part of the loan. If the investor does not act, the broker may sell securities in the account without first consulting the investor about which positions to sell.
An Illustrative Example
Imagine an investor who buys shares using part of their own money and part borrowed from the broker. If the shares fall in value, the investor's equity shrinks relative to the loan. Once equity falls below the maintenance level, the investor receives a call and must restore the cushion or accept that the position may be reduced. An account holding only fully paid shares would see the same decline in market value but would not face a forced sale for this reason.
Why It Matters to Investors
Margin calls show how borrowing magnifies both gains and losses. Because the broker can force a sale, an investor may be pushed to sell holdings at low prices and lock in losses that might otherwise have been temporary. Fast market declines can trigger calls quickly, sometimes before an investor has time to add funds. Understanding the account's equity level and the broker's margin requirements helps investors gauge how much room they have before a call occurs.
Updated October 16, 2026. For general education only; not financial, tax or legal advice.