Term · Risks & Red Flags
Margin Call
In briefA margin call is a broker's demand for additional collateral when a leveraged or credit-financed account falls below a threshold. If the additional margin is not provided, positions can be forcibly liquidated, which in illiquid securities can cause sharp price drops.
Definition
A margin call is a broker's demand for additional collateral when the value of an account financed with credit or leverage falls below an agreed threshold. If the additional margin is not provided in time, the broker may forcibly sell positions. The mechanism affects securities loans, short sales and derivatives.
Why it matters for small caps
If a major shareholder's shares are pledged as loan collateral, a margin call can trigger forced sales and steep price drops in small, illiquid securities. This is both a governance and a price risk.
Common misreadings
- A margin call is often seen as a purely individual investor's problem, even though pledged shares of an anchor shareholder can put the entire share price under pressure.
In the process
Frequently asked
When is a margin call triggered?
When the collateral value of a leveraged account falls below an agreed minimum margin, for example after price losses. The broker then demands additional funds or collateral.
What happens without additional margin?
The broker can forcibly close out positions to restore the collateral. Such forced sales often occur at unfavorable prices and can enlarge the loss.
Why does this also affect other shareholders?
If a major shareholder has pledged their shares as loan collateral, a margin call can force the sale of large blocks. Where liquidity is low, this pushes the price down for everyone.
Related terms
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.