What is forced liquidation in margin trading?

Forced liquidation is the involuntary sale of assets held in a margin account by a brokerage company, normally after the account owner fails to meet margin requirements and calls.

To participate in margin trading, brokerage firms require their users to abide by the set margin rules. If an asset you bought on margin declines in value, your account may become under-margined.

At this point, your brokerage sends you a margin call, alerting you about your account status. Besides, the call requests you to deposit more assets or sell some shares to offset all or a portion of the difference between your actual asset price and the maintenance margin.

When you fail to act to the call requirements, your brokerage has the right to force liquidate your assets.