What is a margin call in trading?

A margin call is a notification from a broker to a trader that their account balance has fallen below the required minimum margin level. This typically occurs when the value of the trader's investments decreases significantly, prompting the broker to seek additional capital to cover potential losses. Margin calls are crucial in leveraged trading, where traders borrow funds to increase their market exposure. When a margin call is issued, the trader can either deposit more funds into their account or close some positions to reduce their margin requirement. Failure to respond to a margin call can result in the automatic liquidation of positions to protect both the trader and the broker from further losses.