Margin call
Family III · Risk
Not to be confused with stop out, margin, free margin, margin level.
Margin call is a notification from a broker that an account no longer holds enough equity to satisfy the margin requirement for its open positions. It obliges the trader to add funds or close positions, and it typically precedes a forced liquidation if the shortfall is not resolved. The exact trigger level and procedure vary by broker, instrument and regulator.[1]
How a margin call arises
Margin is the collateral a broker requires to keep a leveraged position open. When adverse price movement reduces account equity, the margin level — equity divided by used margin — falls. A margin call is issued when that level drops to the broker's maintenance threshold, which is set by the broker and can differ by account type and regulatory regime.
Meeting the call usually means depositing more funds or closing part of the position. If the account deteriorates further, the broker may act unilaterally.
Worked example
A trader holds a position requiring $5,000 in used margin. The broker's margin call threshold is 100% of used margin, and its stop-out level is 50%.
Broker and regulatory variation
The margin call threshold, the notice period and the broker's right to liquidate without notice are not uniform. Retail leverage caps and margin rules differ between jurisdictions, and brokers may apply different thresholds to different asset classes. The terms are set out in the account agreement and the product's key information document, not in a single industry-wide figure.
Often confused with
- stop out
- A stop-out is the broker's forced closure of positions when the margin level falls to a lower, predetermined level; it is the action that follows an unresolved margin call, visible as an automatic liquidation rather than a demand for funds.
- margin
- Margin is the collateral required to open and maintain a leveraged position; it is the amount that generates the call, visible as a required deposit rather than a notification.
- free margin
- Free margin is the equity remaining after used margin is subtracted, available to open new positions or absorb losses; it is a buffer figure, visible as a positive balance rather than a broker demand.
- margin level
- Margin level is the ratio of equity to used margin, expressed as a percentage; it is the metric that triggers a margin call, visible as a percentage rather than a request for funds.
See also
References
- ↑ European Securities and Markets Authority, product intervention measures on contracts for differences sold to retail clients, 2018 — leverage caps by asset class, margin close-out and negative balance protection; carried into national rules across the EEA thereafter. Applies to clients classified as retail. Professional clients fall outside it.