Margin Calls Explained

By Nicole Gibillini, Read bio | Updated on June 5, 2026

Summary

Have you ever wanted to invest more in an opportunity if you could only find the money? Enter margin trading. This investment strategy involves borrowing money from a broker and using those funds to make a larger investment than you could on your own.

The advantage of margin trading is that any gains you earn on borrowed funds are yours to keep, minus any interest and other borrowing costs. But this is a high-risk strategy that’s not for everyone. The major drawback? Margin can magnify your losses if a trade doesn’t go as planned. Not only could you lose money on the investment itself, but you could be required to repay the borrowed funds – and interest – at a time when it’s least convenient, thanks to what’s called a margin call. We explain.

How margin accounts work
What is a margin call?
How margin calls are triggered
The margin call process
Risks associated with margin and margin calls
Regulatory and broker rules on margin calls
Managing and preventing margin calls
Practical examples of margin calls
Historical and notable margin call events
Conclusion on margin calls

How margin accounts work

To trade on margin, you need to apply and be approved for a margin account, a special type of non-registered account that allows you to borrow money from your broker to purchase securities like a stock or a bond. Margin accounts can also be used for more advanced trading strategies, such as options or short selling.

In simple terms, margin means borrowing money from your brokerage using the cash or eligible securities held in your account as collateral. The amount you can borrow depends on the value of your collateral, which can vary from day to day with fluctuations in the market.

What is a margin call?

As a condition of maintaining a margin account, you must hold a certain level of collateral to support your loans. You must also ensure that the ratio of your own investment to borrowed funds stays within approved limits. A margin call occurs when the value of your collateral – or the equity in your investment relative to the loan – falls below the required threshold. If this happens, your brokerage will compel you to deposit additional funds or securities immediately. If you are unable to cover the shortfall, the brokerage may sell investments in your account, potentially without any prior notice, and use the proceeds to repay the loan.

How margin calls are triggered

A margin call will initiate a series of steps:

Notification and timeframes

If your brokerage notifies you of a margin call, you're typically required to replenish the account immediately. In some cases, you may be able to negotiate a specific time to meet the call with your broker. If you miss that deadline, the brokerage can decide, potentially without any additional notice, which stocks or other investments to liquidate to bring the account back to the maintenance level.

Options for meeting a margin call

Investors can respond to a margin call in several ways:

Depositing cash

To avoid having to sell position, the simplest and quickest way to meet a margin call is to add cash to your account.

Depositing eligible securities

Instead of using cash, you can transfer eligible marginable stocks or other securities into your margin account to meet your maintenance requirements. These securities are assigned a loan value, which is a percentage of their market value. This value is used to reduce your margin call.

Selling positions to reduce exposure

Selling assets can do two things. First, it can increase the cash portion of your portfolio, which may have a lower margin requirement than the eligible securities used as collateral, which can carry more risk. Secondly, you can use proceeds from the sale to repay the loan, which in turn boosts the equity in your account while reducing your margin requirements.

Selling securities with higher margin requirements will reduce your margin call more effectively. For example, if you sell $3,000 worth of a stock with a 30% margin requirement, your margin call is reduced by $900 ($3,000 x 30%). However, if you sell $3,000 worth of a stock with a 50% margin requirement, your margin call is reduced by $1,500 ($3,000 x 50%).

Cancel or edit open buy orders

Cancelling open buy orders that require margin can free up buying power and help prevent additional margin usage.

Forced liquidation and its consequences

Risks associated with margin and margin calls

Any type of investing involves risk, but margin trading can be especially risky because of the potential for magnified losses and interest charges on borrowed funds.

Leverage and amplified losses

When you trade on margin, you gain some extra buying power (leverage) from borrowing money from the broker. If the investments do well, gains are amplified, but if the investments perform poorly, losses are amplified, too. Margin traders also incur interest on their loans and risk losing more than their initial investment. If you buy a security and its price falls enough that you are in a margin call, you may need to immediately repay part, or all of, the loan amount, plus interest.

Liquidity risk and forced selling

If there aren’t enough funds in your account to cover the margin call, you may be forced to sell securities. Sometimes, the broker will do this automatically, potentially without notice, in cases of extreme market volatility.

Psychological and behavioural risks

With any investing, there’s a psychological component. Because margin trading can amplify gains, investors may be tempted to make riskier decisions and become overleveraged. It’s crucial to understand how biases can influence your investment decisions and to stay focused on your long-term goals.

Regulatory and broker rules on margin calls

Margin trading in Canada is regulated by Canadian Investment Regulatory Organization (CIRO). The regulator sets the minimum margin required in an account, and brokers may set their own, more aggressive requirements.

Regulatory framework and minimums

CIRO’s minimum requirements vary depending on the type of security. The minimums are subject to change.

Broker-specific margin policies

Brokers may have their own policies and impose their additional requirements on top of the regulatory mandates.

Disclosure, agreements and fine print

It’s important to understand the risks and responsibilities involved with margin trading and to be familiar with the margin rules set by your brokerage. For example, TD Direct Investing’s Margin Disclosure Statement outlines that investors are responsible for maintaining the required margin balance daily, and that in the event of a margin call, the bank can sell securities or other assets without notice.

Managing and preventing margin calls

There are several steps investors can take to avoid margin calls:

Prudent use of leverage

Since being overleveraged can lead to magnified losses, you should always be aware of how much you’re borrowing. Make sure you’re comfortable trading around events that could lead to market swings, such as earnings releases or the publication of economic data reports. Using lower leverage for more volatile assets can reduce risk, too.

Monitoring margin levels and account equity

Keeping tabs on the value of your account can help you avoid being caught off guard by a margin call. Having some extra cash in the account could help to avoid liquidating positions during periods of volatility. Many brokers allow investors to set alerts for when an account falls below a certain threshold.

Risk management techniques

There are strategies around margin portfolio construction that can help investors avoid big losses.

Position sizing and diversification

Diversifying your investments with a wide range of securities can help you avoid the pitfalls of margin trading. If a margin account is concentrated in a few stocks, it’s at greater risk of a margin call if the market swings suddenly.

Stop losses

Stop losses can potentially help to avoid a big drop in the value of an investment and secure existing gains by triggering a sale when the stock hits a pre-determined price.

Stress testing and scenario analysis

Stress testing is a way for investors to assess potential financial situations, such as a market pullback (marked by a 10% decline in market prices) or a bear market (20% decline). Including historical, hypothetical and simulated scenarios can help you to be more strategic about your use of leverage and understand the resiliency of your portfolio. Some brokerages offer stress testing tools online. While stress tests can be helpful, they can also be time-intensive and complex.

Practical examples of margin calls

To help you understand what a margin call looks like, here are a few practical examples:

Example of a stock margin call

Let’s say the broker’s minimum maintenance requirement on a stock is 50%. You purchase $20,000 worth of stock using $10,000 of your own money and another $10,000 borrowed from your broker. Your account equity is $10,000 which matches the minimum equity requirement so you are just barely avoiding a margin call.

Let’s say the stock price falls, and the value of your stock is now $15,000. You still owe the broker the initial $10,000 loan amount (plus interest). So, your account equity is down to $5000. However, the minimum margin maintenance is now $7,500 (50% of $15,000). This means your account is in a margin call for $2,500 ($10,000 - $7,500).

Historical and notable margin call events

Investors can look at past events to learn about the potential pitfalls of margin trading.

Margin calls in major market crashes

We’ve seen this happen in major market crashes, including the 1929 Stock Market Crash and the Great Financial Crisis of 2008–09. In 1929, it had become common to use margin to buy stocks (margin rates were generally lower then, too), which contributed to the crash. Fast-forward to 2008, when a similar story played out. Investors were forced to liquidate their positions in a rapidly declining market, which accelerated market declines even further.

The role of margin calls in systemic risk

Margin calls can pose systemic risks by triggering widespread, cascading liquidations during market downturns. When large swaths of investors face simultaneous margin calls and are forced to sell assets, prices can be driven down even further, triggering more calls. This can lead to a price spiral that can threaten the broader financial system.

Lessons learned from past crises

History’s most severe market crashes show that margin trading isn’t just risky for individual investors but for lenders, too. In extreme conditions, investors selling positions too rapidly could set off a chain of events that, in extreme cases, can put significant pressure on financial systems.

Conclusion on margin calls

While margin trading can lead to greater returns, it’s not for everyone. Investors need to be comfortable with the risk of amplified losses and borrowing costs associated with margin loans. Like with any type of investing, it is important for investors to know their risk tolerance and fully understand the strategies they plan to use before trading.