Margin Call is a crucial concept in trading and investing that every market participant using leverage should understand. It occurs when the value of an investorís margin account falls below the brokerís required maintenance margin. In simple terms, it is a demand from the broker to deposit additional funds or securities to cover potential losses and maintain the minimum required equity in the account.

When an investor buys securities on margin, they borrow money from a broker to amplify their purchasing power. This can increase potential profits, but it also magnifies losses. If the market moves unfavorably and the investorís equity falls below the maintenance margin, the broker issues a margin call. Failing to meet this call within the specified time may result in the broker selling some or all of the investorís holdings to bring the account back to the required level.

The maintenance margin is typically a percentage (for example, 25%) of the total value of the securities. For instance, if an investorís holdings decline sharply due to market volatility, their equity may no longer satisfy this requirement, triggering a margin call. Brokers usually notify investors via email, phone, or trading platform alerts.

Investors can manage margin call risks by maintaining adequate free cash, avoiding excessive leverage, and using stop-loss orders. It is also advisable to monitor market trends and portfolio performance regularly. Understanding how margin calls work helps investors trade responsibly and avoid forced liquidation.

In essence, a margin call serves as a risk-control mechanism in the financial markets. It ensures that both the investor and the broker remain protected from potential credit losses caused by market fluctuations.