A daily margin call is a demand by a brokerage or financial institution for additional funds or securities from a trader to maintain the minimum required equity in a margin account. This occurs when the value of the securities held in the margin account falls below a pre-established level, known as the maintenance margin.
The relevance of a daily margin call lies in risk management within leveraged trading. When a trader borrows funds to invest in securities, they increase their potential returns, but also their risk of losses. If the account equity drops significantly due to market fluctuations, a margin call ensures that the trader maintains sufficient collateral to cover potential losses. Failure to meet a margin call can lead to the liquidation of assets in the account, potentially resulting in substantial financial losses.
In summary, a daily margin call is a crucial mechanism in finance that helps protect both brokers and traders by ensuring that accounts maintain adequate equity levels in volatile market conditions.
