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 broker has the right to initiate a margin call 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 types of liquidation marginsif an investor or trader holds a long position the liquidation margin is equal to what the investor or trader would retain if the position were closed if a trader has a short position the liquidation margin is equal to what the trader would owe to purchase the security example of a liquidation marginsarah is a margin trader who invested 10 000 in a single stock using 100 leverage assuming sarah paid the required margin interest or the loan rate between broker and investor and used a 2 1 leverage the stock increased in value and she holds 20 000 worth of stock since the initial liquidation margin is only 10 000 10 000 is what sarah would receive if the account were closed suppose that sarah s stock performed poorly and fell 25 since sarah was initially using 2 1 leverage that means she lost 50 of her original investment sarah s account now has a liquidation margin of just 5 000 but she commands 15 000 worth of stock 