Margin Call: What It Is, Why It Happens, and How to Avoid It

When you trade on margin, borrowed money from your broker to buy more stocks than your cash balance allows. Also known as leveraged investing, it can amplify gains—but it also makes losses hurt worse. A margin call, a demand from your broker to add more cash or securities to your account when your equity falls below a required level isn’t a warning—it’s a deadline. If you don’t act fast, your broker will sell your positions, often at the worst possible time.

Margin calls happen because of margin requirements, the minimum amount of your own money your broker forces you to keep in your account relative to the value of your borrowed positions. For example, if your broker requires 50% equity and your portfolio drops 30% in value, you might suddenly owe $10,000 just to stay in the game. This isn’t rare—it’s common during market swings. People think they’re being smart by using leverage to buy more shares, but they forget that markets don’t care how much you borrowed. They only care if you have enough skin in the game. And when they drop, your broker’s first move isn’t to help you—it’s to protect itself.

You’ll see margin calls come up in posts about margin trading, the practice of using borrowed funds to increase your buying power, especially when investors try to time the market or chase high-risk assets like crypto or small-cap stocks. But the real danger isn’t the trade itself—it’s not having a plan for when things go wrong. Most people don’t realize that even a well-diversified portfolio can trigger a margin call if the whole market tanks. And once you’re in one, panic selling makes it worse. The smart move? Know your broker’s rules before you open a margin account. Keep extra cash ready. And never, ever use borrowed money for money you can’t afford to lose.

Below, you’ll find real examples from investors who’ve been through this—some lost everything, others walked away smarter. You’ll learn how to spot early warning signs, what brokers won’t tell you about margin limits, and how to use tools like stop-losses and position sizing to stay in control. This isn’t about getting rich fast. It’s about not getting wiped out trying.