Key points
- Margin requirement typically 50% (buy $100, put up $50).
- Stock drop triggers margin call; forced sale if unable to deposit more.
- Major source of selling during crashes; can cascade.
Example
If you buy $10,000 of shares using $5,000 of your own money and $5,000 borrowed, a 30% fall cuts your $5,000 stake to $2,000, a 60% loss, and may trigger a margin call.
In history
Margin calls amplified the 1987 crash, when the Dow fell 22.6% in a day. In 2021, losses at the investment firm Archegos Capital triggered margin calls that forced banks to sell around $20 billion of shares in a few days.
Related terms