Margin Call

Margin call requires additional collateral due to increased credit risk

A margin call occurs when a financial market participant must provide more funds to cover losses on an investment. This situation arises when the value of the collateral falls below a certain threshold, increasing the credit risk for the lender. The margin call is a protective measure to ensure that the borrower maintains a minimum level of equity in the investment.

Example

If an investor borrows $100,000 to buy stocks worth $120,000, a margin call may occur if the stock value drops to $110,000, requiring the investor to deposit additional funds to maintain the loan-to-value ratio.

Remember this

Understanding margin calls is crucial for investors to manage risk and avoid forced liquidation of assets.

Text adapted from Wikipedia, licensed under CC BY-SA 4.0.

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Educational content, not financial advice.

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