Margin call
Meaning
A margin call is a demand from a broker for an investor to deposit additional funds or securities to cover potential losses in a leveraged trading account.
Origin
Imagine the frantic days of the roaring 1920s, when speculation ran wild and fortunes were made (and lost) on borrowed money. Investors would buy stocks on 'margin,' meaning they paid only a fraction of the cost themselves, borrowing the rest from their broker. The purchased shares served as collateral. But when the market turned south, and the value of those shares plummeted, the broker suddenly faced a massive risk. They would 'call' the investor, demanding immediate additional funds—the 'margin'—to cover the dwindling collateral. It was a terrifying, urgent summons, a literal phone call that signaled impending financial ruin, cementing 'margin call' into our lexicon as a symbol of market panic and a broker's demand for more cash.
Examples
- When the stock market suddenly plunged, she received an urgent margin call from her brokerage, demanding more funds.
- He tried to avoid a margin call by selling off some of his less promising investments before the market dropped further.