“Margin call”

definition

A margin call, (also known as fed call or maintenance call) is a broker request to clients to deposit additional funds or securities in their margin account, as the collateral assets it contains have devalued to a defined level known as the maintenance margin. They might also force clients to close the position by selling the assets.

In finance, a margin call is related to margin trading. This is the practice of borrowing money from a broker in order to purchase a certain financial instrument. This practice allows an investor to buy €20,000 of stocks while paying only €10,000 (as the other €10,000 is borrowed from the broker).

In foreign currency, a margin call is sometimes related to forward contracts. Under the terms of the contract, the vendor normally requests collateral to protect against the risk of currency fluctuations. If the exchange rate moves against the buyer’s forward position, the vendor could issue a margin call requesting that the buyer add funds to this collateral, so their open forwards do not put the vendor’s liquidity at risk.