What is a margin call in trading?

A margin call occurs when a trader's account value falls below the required margin level set by the broker. Typically, traders use margin to leverage their positions, which amplifies both potential profits and losses. When the equity in the trading account drops due to market fluctuations, the broker may issue a margin call, requiring the trader to deposit additional funds to restore the minimum margin level. If the trader fails to meet the margin requirements within the specified time, the broker may liquidate some or all of the trader's positions to mitigate risk. Understanding margin calls is crucial, as they can lead to significant changes in a trading portfolio and underscore the importance of risk management.