A Margin Call occurs when the value of an investor’s margin account falls below the broker’s required maintenance margin. This typically happens when the assets bought on margin decrease in value, causing the equity in the account to drop below the minimum threshold set by the broker.

When a Margin Call is issued, the investor must act quickly to meet the margin requirements by either depositing additional funds or securities into the account or by liquidating some of the positions to reduce the margin requirement. If the investor fails to meet the Margin Call within the specified time frame, the broker has the right to sell assets in the account to bring the account back to the required level.

Margin Calls are particularly relevant in leveraged trading, where investors use borrowed funds to increase their market exposure. Because leverage amplifies both potential gains and potential losses, it increases the likelihood of receiving a Margin Call, especially in volatile markets.

The frequency and severity of Margin Calls can be influenced by market conditions, the level of leverage used, and the volatility of the assets in the account. High leverage and volatile markets can lead to rapid declines in asset values, triggering Margin Calls more frequently.