Margin Call

Stock trading dictionary: meaning, example and how traders use it.

Last updated: October 17, 2026

Definition: A margin call is a demand from a broker for an investor to deposit more cash or securities, or sell holdings, because the equity in a margin account has fallen below the required maintenance level.

How a margin call works

When you buy on margin, your equity is the market value of your securities minus the amount borrowed. Brokers require that equity stay above a maintenance percentage of the account's value. FINRA's minimum for long stock positions is 25%, and brokers often set higher house requirements, such as 30% or more, for volatile, concentrated, or low-priced holdings.

If prices fall and equity drops below the requirement, the broker issues a maintenance call. The investor can respond by depositing cash, depositing marginable securities, or selling positions. Brokers may set a short deadline, and in fast markets they can liquidate holdings immediately without waiting for a response. A separate Regulation T call occurs when a new purchase is not fully funded with the required initial margin.

Margin call formula and example

For a long position, the price at which a call is triggered can be estimated as:

Trigger value = Loan / (1 - maintenance requirement)

Suppose an investor buys 1,000 shares at $40, a $40,000 position, using $20,000 of their own money and borrowing $20,000. With a 30% maintenance requirement, the trigger value is $20,000 / 0.70 = about $28,571, or roughly $28.57 per share.

If the stock drops to $26, the position is worth $26,000 and equity is $6,000. Required equity is 30% x $26,000 = $7,800, so the call is $1,800. The investor could deposit $1,800 in cash. Alternatively, selling shares reduces the loan; because each dollar of sales repays a dollar of debt but lowers required equity by only 30 cents, the investor would need to sell about $6,000 of stock, more than three times the cash shortfall.

Why margin calls are dangerous

  • Forced selling at lows: liquidation often happens after a sharp drop, locking in losses that might have recovered.
  • Gaps: stocks can open far lower after bad news, skipping past the trigger and pushing equity toward zero or below.
  • Cascades: when many leveraged traders are forced to sell at once, selling pressure can deepen a market decline, adding to volatility.
  • Changing rules: brokers can raise requirements or apply a larger haircut to a holding without much notice.

How to avoid a margin call

Use less leverage than the maximum allowed, keep a cash buffer, diversify rather than concentrating borrowed money in one stock, and monitor positions daily. Stop orders can limit losses, though they may fill at worse prices during gaps. Understanding your broker's specific house requirements, and how they apply to each holding in your portfolio, is essential before borrowing. Margin calls are a key part of investment risk for leveraged accounts.

Frequently asked questions

What happens if you do not meet a margin call?

The broker can sell securities in your account, often without further notice, to bring equity back above the requirement, and you remain liable for any deficit.

How long do you have to meet a margin call?

It depends on the broker and market conditions. Some allow a few days, but brokers are permitted to liquidate positions immediately.

Can a margin call happen in a cash account?

No. Margin calls apply to margin accounts, although cash accounts have their own rules about paying for purchases before selling.

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For information only, not investment advice. See the disclaimer.