What is a Margin Call?

Reviewed by Ed WilkinsonLast updated: May 8, 2026 12:06 pm

In this article:

What is a Margin Call?
Common Causes of Margin Calls
Steps to Handle a Margin Call
Preventing Margin Calls
A Financial Adviser Can Help

Margin trading can increase your market exposure and potential returns, but it also magnifies losses and is not suitable for everyone. One important concept is the margin call. This guide explains what a margin call is, how it can occur, and practical ways to manage or reduce the risk.

What is a Margin Call?

A margin call happens when the equity in your margin account falls below the maintenance margin set by your broker. Equity is the value of your holdings minus what you owe the broker. When this threshold is breached, you will be asked to deposit cash or add eligible securities. Under most margin agreements, the broker may also increase margin requirements and sell some or all of your positions without your prior consent to restore the account, which can quickly crystallise losses.

Understanding Margin Requirements

Margin trading involves borrowing from a broker to buy securities, with your existing cash and investments acting as collateral. The broker sets a margin requirement, which is the percentage of the purchase price that the investor must pay with their own funds.

As of 2026, for UK share-dealing accounts, initial margin for mainstream equities¹ is typically around 50%, while maintenance margins² often sit between 25% and 40%; higher or lower figures may apply depending on the broker, the type of security, and its volatility. For example, if the initial margin is 50% for a £20,000 position, you would need to contribute £10,000, with the broker lending £ 10,000. Note: for retail clients trading CFDs or spread bets, FCA rules cap leverage (for example, up to 30:1 for major FX pairs and typically 5:1 for most individual shares), which in effect means higher margin requirements than for cash equity positions.

If market volatility causes the purchased securities to depreciate so that your equity falls beneath the broker’s stipulated maintenance margin, a margin call is triggered. This usually requires prompt attention to avoid potential liquidation of securities.

Factors Influencing Margin Calls

Several market-related factors can precipitate a margin call:

Significant Market Downturns: Sharp declines in the market can erode the value of securities held on margin very rapidly.
Interest Rate Changes: An increase in interest rates can reduce the market value of bonds held on margin, increasing the likelihood of a margin call.
Regulatory Changes: New regulations, changes in financial reporting standards, or adjustments to a broker’s own house margin requirements can also impact securities prices and margin requirements.

Understanding these drivers and monitoring markets, interest-rate expectations and broker communications can help investors maintain adequate margins and reduce the chance of a margin call. Staying up to date on market conditions and economic news is important for effectively managing the risks associated with margin trading.

Proactive Margin Management

To effectively manage a margin account, investors should consider setting their own margin buffer that exceeds the broker’s requirements. For example, maintaining an equity cushion of 10% or more above the minimum requirement can provide a safer buffer against market fluctuations. Additionally, regularly reviewing the account to assess risk exposure, receiving price move alerts, and adjusting based on current market conditions are prudent practices that can help prevent margin calls.

By understanding how margin works and responding quickly to changing conditions, investors can better navigate the complexities of leveraging investments and safeguard their financial positions against unexpected market shifts. Remember that trading on margin can result in losses greater than your initial investment

Common Causes of Margin Calls

Several factors can trigger a margin call, but the most common include:

Market Volatility: Rapid and significant downturns in the market can lead to a substantial decrease in the value of securities purchased on margin. For example, during the 2020 market crash, many investors experienced margin calls as stock prices plummeted within a short period.
Poor Performance: When specific securities purchased with borrowed funds underperform or decline in value, it can directly trigger a margin call. This scenario often reflects not just market trends but also the intrinsic vulnerabilities of the selected investments.
Leverage: Employing high levels of leverage can magnify both profits and losses. While it may seem attractive during market upswings, it significantly increases the risk of a margin call when the market dips. Carefully consider the leverage ratio in relation to market volatility, your risk tolerance, and the performance history of the chosen securities.
Interest Rate Fluctuations: Changes in interest rates can affect the cost of borrowing and the overall financial markets. An increase in rates often leads to a decrease in bond prices, which can adversely affect the value of bonds held on margin, thereby increasing the potential for a margin call.

Understanding these triggers and maintaining a proactive approach to investment and risk management can help investors mitigate the risks associated with margin trading. Regularly reviewing your investment portfolio and adjusting your strategies based on current market conditions and your financial goals is crucial in managing potential risks effectively.

Steps to Handle a Margin Call

Dealing with a margin call effectively requires prompt and decisive action. Below are the steps one can take:

Deposit Additional Funds: The quickest way to meet a margin call is by depositing more money into the margin account to restore its balance. Act swiftly: brokers may have the right to liquidate positions without notice if the call is not met in time.
Sell Some Securities: Alternatively, selling some of the securities held in the account can also raise the account balance to meet the margin requirements. This option might be preferable if additional funds are not readily available. When selecting securities to sell, consider those that are underperforming or do not align with your long-term investment goals.
Rebalance the Portfolio: Sometimes, re-evaluating and adjusting the portfolio to include lower-risk securities can help prevent further margin calls and better align the investment with the investor’s risk tolerance. This might involve shifting towards more stable investments, such as government bonds or blue-chip stocks, which typically experience less volatility.

Additional Considerations

When handling a margin call, it’s critical to understand the time-sensitive nature of these demands. Many brokers require that you meet margin calls immediately or within a very short timeframe (sometimes the same trading day) and may reserve the right to close positions without prior notice. Check your margin agreement for the exact terms.

Communication with Your Broker: Engaging in open communication with your broker can provide you with additional guidance and, in some cases, more flexible options for meeting margin requirements.
Review Leverage Levels: Consider the current leverage levels in your portfolio. If they are consistently leading to margin calls, it may be wise to reduce leverage to manage risk more effectively.
Prepare an Emergency Fund: Maintaining an emergency fund specifically for such financial exigencies can be a prudent strategy. This fund can help you manage margin calls without needing to liquidate assets in unfavourable market conditions.

By taking these steps and maintaining a proactive approach to managing your margin account, you can navigate the challenges posed by margin calls and protect your financial health. Regularly review your investment strategy and adjust it in line with your risk tolerance and market conditions. Remember, while leverage can amplify returns, it also increases your exposure to potential losses, which can exceed your initial outlay.

Preventing Margin Calls

While handling margin calls is crucial, preventing them is even more important. Here are strategies to help avoid receiving a margin call:

Maintain a Healthy Balance: Keeping a buffer in the margin account beyond the minimum requirement can provide a cushion against market fluctuations. Consider maintaining at least 10% to 20% above the broker’s required margin to help mitigate risk during volatile market conditions.
Monitor Investments Closely: Regularly review and manage the portfolio to ensure it aligns with current market conditions and personal risk tolerance. Setting up automatic alerts for price movements or relevant news can help you stay informed and make timely decisions.
Leverage Management: Be cautious with the amount of leverage used. Less leverage means a lower risk of a margin call. Consider a leverage ratio commensurate with your experience, objectives, and the volatility of the assets in your portfolio.
Diversification: Spreading investments across various asset classes can reduce the risk of significant losses in any single investment. Ensure that your investment portfolio includes a mix of assets appropriate for your risk appetite.
Risk Assessment Tools: Utilise risk management tools and techniques such as stop-loss orders or options strategies to help manage and limit losses. Be aware that standard stop-loss orders are not guaranteed; some providers offer guaranteed stop-losses for an additional cost.

Additional Tips for Margin Account Management

To further enhance the stability of your margin account and prevent margin calls, consider the following additional strategies:

Regular Portfolio Rebalancing: Rebalance your portfolio periodically to align with your risk tolerance and investment goals. This might involve reducing positions in higher-risk assets or increasing holdings in more stable assets.
Stay Informed About Market Trends: Keeping abreast of current financial markets and economic conditions can help you anticipate changes that might affect your investments. This proactive approach allows for timely adjustments to your investment strategy.
Understand Margin Requirements: Different securities may have different margin requirements. Understanding these can help in planning how much capital to allocate to different investments within your margin account.

By implementing these strategies, you can enhance your ability to manage your investments proactively and reduce the likelihood of facing a margin call. Effective margin management is not just about responding to market conditions but also about preparing in advance to handle potential financial stressors in your investment journey.

A Financial Adviser Can Help

Margin trading, while potentially profitable, carries substantial risks, including margin calls and losses exceeding your deposit. A regulated financial adviser can provide educational guidance on how leverage works and the associated risks, and whether it may be appropriate for your circumstances.

Financial advisers can also offer ongoing portfolio reviews and adjustments in response to changing market conditions or personal financial goals, helping to keep your investments aligned with your long-term objectives.

If you’re considering margin trading or are currently facing a margin call, seeking regulated financial advice may help you understand your options and the risks involved.

If you choose to use a directory such as FinancialAdvisers.co.uk to find advice, ensure any adviser is authorised by the FCA and appears on the Financial Services Register. Directories do not provide advice themselves and cannot guarantee outcomes.

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