A margin call arises when the equity (value of the assets you put in) drops below an agreed lending ratio. If your share price falls below the agreed limits you are asked to put more money or shares in to bring equity value back up to the agreed ratio. This is a margin call. You could use your own money, sell some shares or, if you can, borrow more money. Margin calls can be upsetting if your finances are tight.

All day trading markets have margin requirements, but many day traders do not fully understand what margin is, nor what happens when their brokerage makes a margin call.

Margin is nothing to be scared of, as it is simply a financial requirement that is set by the exchange that offers a particular market, but a margin call is something that should be avoided at all costs.

Professional traders should never experience margin calls. Margin calls are only received when a trade has lost so much money that the exchange wants more money as collateral to allow the trade to continue. A professional trader should be managing their trades well enough that they never allow a trade to become this much of a loser.

Margin calls are most often experienced by amateur buy and hold investors, because once they enter their trades (typically by buying a stock), they will hold the trade no matter what the market does. As many of these buy and hold trades become large losers, they often experience margin calls, and unfortunately many amateur investors will deposit more cash to cover the margin call.

To reduce the risk of a margin call you can:

• Gear conservatively and borrow less than the maximum available
• Diversify your portfolio across a number of industry sectors and companies
• Make regular interest payments and don't capitalize your interest
• Monitor your portfolio and loan balance frequently
• Reinvest the income from your investments