The Comprehensive Guide to

Passive Income Investing


Learn the secrets of how Paul Tracy generates over $XXX,XXX per month in passive income!

How to Become Financially Independent Through Passive Income Investing

What is Forced Liquidation?

Forced liquidation is the sale of all investments within a customer's margin account by a brokerage firm, usually after the account has failed to meet margin requirements and margin calls.

How Does Forced Liquidation Work?

To engage in trading investments on margin, brokerage firms generally require their investing clients to follow the firm's rules on margin requirements.

If an investment that was bought on margin drops in price, the account may become under-margined. The brokerage firm may then issue a margin call, notifying the client that they are under-margin in the account, and that they must either deposit more cash or sell some of the shares to offset all or part of the difference between the actual stock price and the maintenance margin.

Should the client fail to meet the margin requirements within the brokerage account, the firm holding the account has the right to force liquidate; they may sell off and close all open investment positions held in the account.

Why Does Forced Liquidation Matter?

Brokerage firms use forced liquidation to protect themselves from the potential losses from under-margined accounts that are exposed to a declining value investment.

If a client with a margin account fails to respond to a margin call when their margined investment drops in value, the brokerage firm (who also allowed the client to borrow from them on margin) may be on the hook and suffer losses if they don't sell the investment.

Ask an Expert about Forced Liquidation

All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Forced Liquidation.

Be the first to ask a question

If you have a question about Forced Liquidation, then please ask Paul.

Ask a question
Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.