"Margin Calls Threaten Investors"

This is a UK news story, published by Yahoo Finance, that relates primarily to Morgan news.

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margin call

Telegraph

•

Business

Business & Economics

What is a margin call and why is Wall Street terrified?

Summary

Nutrition label

68% Informative

Hedge funds and wealthy individuals typically obtain a loan by pledging a portfolio of shares to large investment banks such as Goldman Sachs , JP Morgan or Morgan Stanley .

The catch is that if the value of these shares falls below a certain point, banks will demand extra funds to make up the shortfall.

Banks are happy to lend to hedge funds when markets are rising because they assume the risks are low.

To meet margin calls, funds start liquidating their holdings to pay for the emergency funding, creating a vicious cycle of selling which pushes stock prices down further.

In the UK , personal margin loans are less common but can lead to huge bust-ups with bankers if margin calls are made.

Mike Ashley’s Frasers Group was subject to a $ 1bn margin call from Morgan Stanley over Frasers’ trading positions in German fashion giant Hugo Boss .

VR Score

Informative language

Neutral language

Article tone

semi-formal

Language

English

Language complexity

Offensive language

not offensive

Hate speech

not hateful