What is a margin call?

The holder must add cash or sell. If neither happens, the broker can sell the position. Forced selling can push prices lower and set off other margin calls, which is why it can spread in a falling market. Being right about a stock later does not help a holder who has already been sold out.

Say a fund buys $100 million of stock with $20 million of its own and must keep $10 million in it. A 15% fall leaves $5 million, which triggers a call.

Borrowing magnifies gains and losses, and a call can force a sale at a low price.

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