Margin Call

A margin call is a broker demanding more money when losses on borrowed funds grow too large. It is triggered when the value of the collateral falls below a set threshold.

Brokers do this to limit the risk of not being repaid. If the price keeps falling, the collateral will no longer cover the debt, so they collect extra security before that point arrives.

Fail to deposit in time and the broker sells your holdings for you — a forced liquidation. Because it executes at whatever price the market offers rather than one you chose, the loss is locked in.

The timing is the worst part. Margin calls cluster during sharp market declines, and forced sales pour in at the same moment. The structure makes you sell at precisely the cheapest point.

So investing on borrowed money fails even when the call is right, if you cannot hold on. Get the direction correct but get liquidated along the way and the recovery belongs to someone else. Setting a limit you can survive in advance is the only real defence.