What Is a ‘Margin Call’ and How Is It Related to Leverage?
A margin call is a demand from a broker or exchange for a trader to deposit additional funds or collateral into their margin account. It occurs when the value of the trader's collateral falls below the maintenance margin requirement due to losses on their leveraged position.
Leverage directly increases the risk of a margin call because a small adverse price movement can result in a disproportionately large loss. Failure to meet the margin call leads to forced liquidation of the trader's position to cover the losses.
