Understanding Liquidation Margins
Margin trading is the practice of borrowing money from a broker to execute leveraged transactions, such as buying securities. Leveraged trading involves borrowing the securities themselves from the broker's inventory when engaging in short selling. The trader then sells those securities and seeks to repurchase them at a lower price in the future.

When using margin trading, an investor must ensure that the total value of the margin account does not drop below a certain level. The value of the account, based on market prices, is known as the liquidation margin.

Consider a scenario where a trader makes a series of leveraged stock purchases. If the purchases begin to generate losses, the liquidation margin of the account will decline. If the decline continues, it will eventually reach the point where the

A margin call effectively forces the trader to provide additional collateral for the account to reduce its risk level. Typically, this collateral consists of depositing more cash in the brokerage account, which becomes part of the liquidation margin, raising the margin level above the required threshold.