Simple definition
A margin call is a demand from your broker to add money or collateral when the value of your margin account falls below the required minimum. If you can't meet it, the broker can sell your holdings — without your permission — to cover the loan. Think of it as the lender calling in its safety cushion.
Why it matters
A margin call is where borrowing to invest can turn painful fast. It usually strikes after prices have already dropped, forcing you to add cash or sell at the worst possible time. Because the broker can liquidate your holdings on their schedule, a margin call can lock in losses you never chose to take.
Real-life example
Imagine you bought stock partly with borrowed money and it falls hard. Your account dips below the broker's minimum, so they demand $2,000 more. You can't add it, so they sell some of your shares at the low price to repay the loan. These are rounded, hypothetical figures to show how it unfolds.
Common mistakes
- Assuming a margin call is a polite request, when the broker can sell your holdings to satisfy it.
- Investing on margin with no cash cushion set aside to meet a possible call.
- Believing you'll always have time to react, when brokers can act quickly and on their terms.
- Forgetting that a margin call tends to hit right after prices have already fallen.
Pro tips
- Understand that a margin call can force sales at the worst time before ever borrowing to invest.
- Keep a wide safety cushion so ordinary price swings don't trigger a call.
- Know that avoiding margin entirely removes the risk of a margin call altogether.
- If you use margin, read your broker's rules on how and when they liquidate holdings.
Related Money Dictionary terms
- Margin AccountA brokerage account that lets you borrow money to invest, which can boost gains but also magnify losses.
- LeverageUsing borrowed money to increase the size of an investment, raising both potential returns and potential losses.
- Short SellingBetting an investment's price will fall by borrowing shares, selling them, and hoping to rebuy cheaper later.
- BrokerA firm or person that carries out your orders to buy and sell investments, often for a fee or commission.
- VolatilityHow sharply and often an investment's price swings up and down over a given period.
- Cash AccountA brokerage account where you pay in full for investments and cannot borrow to trade.
Frequently asked questions
What triggers a margin call?
A margin call happens when the value of your margin account drops below the minimum equity your broker requires, usually because the investments you bought with borrowed money have fallen in price. The broker then demands you add cash or securities to restore the cushion. If you don't, they can sell your holdings to cover the loan.
Can I avoid margin calls entirely?
Yes — the simplest way is not to invest on margin at all. In a cash account, you only invest money you have, so there's no loan to fall short on and no margin call possible. If you do use margin, keeping a large buffer above the minimum lowers, but never fully removes, the risk.
What happens if I can't meet a margin call?
If you can't add the required cash or collateral in time, your broker can sell your investments to cover the borrowed money — often without asking first and without letting you pick which holdings go. Sales usually happen after prices have already dropped, so a margin call can lock in losses at a bad moment.
Knowing what Margin Call means is knowledge — the first half. A brick gets placed when you act on it: Before using margin, read FINRA's guidance on margin calls so you understand that the broker can sell your holdings without asking..
Sources & references
More in Investing
Plain-English education — not personalized legal, tax, or investment advice.