What occurs during a margin call in trading?

A margin call occurs when a trader's account equity falls below the required maintenance margin level. This situation typically arises when the value of the assets in the margin account declines, leading to insufficient collateral to support open positions. During a margin call, the broker will notify the trader to either deposit additional funds or liquidate some positions to restore the margin requirement. If the trader fails to take action, the broker has the right to close positions without further notice to mitigate risk. Understanding margin calls is essential for effective risk management, as they can lead to significant financial consequences if not addressed promptly.