What is a margin call in trading?

A margin call occurs when a trading account's equity falls below the required margin level set by the broker. This situation typically arises in leveraged trading, where traders borrow funds to increase their market exposure. When the value of a trader's open positions declines, the broker may issue a margin call, prompting the trader to deposit additional funds or close positions to restore the minimum margin requirement. Failure to meet a margin call can result in the automatic liquidation of assets within the account to cover any losses. Understanding margin calls is crucial for effective risk management, as they can impact a trader's overall capital allocation and trading strategy.