Can a Trader’s Psychological Biases, like the Disposition Effect, Worsen the Impact of a Margin Call?

Absolutely. The disposition effect is the tendency for investors to sell winning assets too early and hold losing assets too long.

A trader influenced by this bias might hold onto a losing leveraged position, hoping it will recover, rather than cutting losses early. This denial prevents them from managing risk proactively.

As a result, when the market moves against them, they are more likely to face a sudden, catastrophic margin call, leading to a forced liquidation that is far more damaging than an earlier, voluntary exit would have been.