A margin call is not a penalty. It is the point at which the equity in your account has fallen far enough that the lender requires the buffer to be restored. Understanding exactly how that point is calculated — and what happens if you do not act — is the most important operational knowledge a leveraged investor can have.

The ratio that governs everything

Most facilities monitor a maintenance ratio:

Maintenance ratio = Collateral value ÷ Loan balance × 100

Two thresholds sit on that ratio:

  • Margin call level — commonly around 130%. Below this, you are required to restore the buffer.
  • Stop-out level — commonly around 110%. At or below this, the lender begins closing positions without further notice.

The gap between the two is your response window. It exists so that a normal market fluctuation does not immediately become a forced sale.

Walking through the arithmetic

Start with a healthy account:

  • Collateral: £500,000
  • Loan: £250,000
  • Ratio: 200% — comfortable

The market falls 20%:

  • Collateral: £400,000
  • Loan: £250,000
  • Ratio: 160% — still above the call level

It falls a further 15% (a 32% cumulative decline):

  • Collateral: £340,000
  • Loan: £250,000
  • Ratio: 136% — approaching the call

Another 5%:

  • Collateral: £323,000
  • Ratio: 129% — margin call

Note how the ratio decelerates on the way down but the consequences accelerate. From here, a further 15% decline takes the ratio to roughly 110% and triggers stop-out.

Resolving a call

Three ways to restore the ratio, and they are not equivalent:

Deposit cash. Reduces the loan directly and immediately. To return the account above to 150%, you would need to repay roughly £35,000. The fastest and cleanest remedy.

Deposit eligible securities. Increases collateral value. Because the addition is subject to LTV, you need more securities than the cash equivalent — at 70% LTV, roughly £50,000 of stock does the work of £35,000 of cash.

Sell positions. Reduces exposure and repays the loan simultaneously, so it moves the ratio faster than depositing an equivalent amount. It also crystallises the loss and removes you from any recovery. It is the remedy of last resort for a reason.

Time limits

Response windows vary and are set out in the facility agreement — commonly one to three business days. Two conditions override the stated window:

  • If the account reaches the stop-out level before the deadline, liquidation proceeds regardless of time remaining.
  • In severely disorderly markets, some agreements permit immediate action.

Read your agreement’s wording and our risk disclosure on both points before you need it.

How forced liquidation is executed

If stop-out is reached, the lender closes positions until the ratio is restored to a safe level. Typically it will:

  • Sell the most liquid positions first, to minimise slippage
  • Close enough to restore a buffer above the call level, not merely to the threshold
  • Execute at prevailing market prices, with no obligation to seek a favourable print
  • Charge the associated costs to the account

You do not choose which positions go. This is the part investors most consistently underestimate: the liquidation is optimised for the lender’s risk, not for your portfolio construction, tax position or conviction.

Staying away from the edge

Keep the working ratio high. An account run at 200% survives a 35% decline before a call. One run at 150% survives roughly 13%. The difference in cost between the two is small; the difference in survivability is enormous.

Set your own alert above theirs. If the call level is 130%, act at 160%. Voluntary de-risking on your terms is always cheaper than involuntary de-risking on theirs.

Stress-test before drawing. Compute the ratio at −20%, −30% and −40% before the position exists. If −30% breaches your call level, the position is too large — not because the decline is likely, but because you cannot survive it if it happens.

Hold liquidity outside the account. A cash reserve that can be deposited within a day converts a forced liquidation into an inconvenience.

Watch correlation, not just concentration. In a sharp sell-off, correlations converge toward one. A portfolio that looks diversified in calm markets can behave as a single position in a crisis — and the maintenance ratio is calculated in the crisis, not in the calm.

The core insight

The purpose of these levels is not to catch you out. It is to ensure the loan remains covered. The investor who understands that runs a lower balance than the facility permits, monitors the ratio rather than the profit and loss, and treats the call level as a line that should never be approached rather than a limit to be used.

This article is general information and not investment advice. Levels shown are illustrative and set out in your facility agreement.