What is a margin call in trading?

A margin call occurs when a broker demands that an investor deposit more funds into their margin account to maintain their leveraged position. This typically happens when the value of the securities in the account falls below a certain threshold, known as the maintenance margin. Brokers use margin accounts to allow traders to borrow money to amplify their market exposure, which comes with an increased risk of losses. When the equity in a margin account drops and fails to meet the required level, the broker may issue a margin call, which can compel the trader to either deposit additional funds or liquidate their positions to reduce their margin obligations.