MARGIN CALL VS. FORCED LIQUIDATION

Over the past several weeks I’ve noticed several posts or comments that lead me to believe there may be a bit of a misunderstanding about what a MARGIN CALL is. Because I love all of my fellow HODLers, I am not going to single out any of the posts or comments.

I know that I, like many of you, have added a bunch a wrinkles since January thanks to many of the brilliant Apes writing DD and the Silverbacks coming and doing AMAs and I’m hoping that you, like me, never get tired of adding more. Since there seems to be a little bit of a misunderstanding about what a margin call actually is, I thought it would be good to provide some clarification and add a few more wrinkles to all of our smooth brains.

Also, if you’re looking for a way to pass the time while waiting for the MOASS, I suggest reading through https://www.investopedia.com/. There’s seriously a ton of ELIA information about investing and the market. This is of course after you catch-up on any of the AMAs, Dr. T’s book, and the essential market related movies (MARGIN CALL, The Big Short, The Wall Street Conspiracy, Boiler Room, Wolf of Wall Street, etc.)

Now for what you came here for:What is a margin call?

Generic definition: “A margin call is a request for additional collateral when a trader’s position or investment drops in value.”

This is more of a description of how it works between a retail investor and broker but the principle is the same:

“A margin call occurs when the value of a margin account falls below the account’s maintenance margin requirement. It is a demand by a brokerage firm (lender/Bank) to bring the margin account’s balance up to the minimum maintenance margin requirement. To satisfy a margin call, the investor (Borrower/Hedge Fund/Institution) of the margin account must either deposit additional funds, deposit unmargined securities, or sell (close) current positions.”

More in depth description about what a margin call is here: https://www.investopedia.com/terms/m/margincall.asp

TL;DR: A margin call is the notice that a borrower’s collateral has become inadequate for their current investment position. They must either deposit more collateral or close a portion of their “at risk” positions. It is not a forced closeout. A forced closeout is what happens if the borrower is unable to satisfy the margin call. As long as a borrower is continually able to satisfy the requirements of the margin call(s), they are able to keep their position.

SPECULATION: This explains why we are seeing so many “Pump & Dumps” of securities that Citadel & Friends have positions in. They’re printing money off of these other SCAMS in order to satisfy the margin requirements for the positions they currently hold while they string them out to try to slowly unwind them over time.

DO NOT DAY TRADE GME! DO NOT FALL FOR ANY OF THESE OTHER PUMPED SECURITIES/CRYPTO! DON’T FEED THE BEARS, THEY’LL EAT YOU!

https://i.redd.it/9llkyh6lvo141.jpgWhat is Forced Liquidation?

Basic Definition:

“Forced selling or forced liquidation usually entails the involuntary sale of assets or securities to create liquidity in the event of an uncontrollable or unforeseen situation.”

“Within the investing world, if a margin call is issued and the investor is unable to bring their investment up to the minimum requirements, the broker has the right to sell off the positions.”

THIS IS THE SPECIFIC TYPE OF LIQUIDATION WE ARE WAITING FOR:

“The opposite of forced selling in a margin account is a forced buy-in. This occurs in a short seller’s account when the original lender of the shares recalls them or when the broker is no longer able to borrow shares for the shorted position. When a forced buy-in is triggered, shares are bought back to close the short position. The account holder might not be given notice prior to the act.”

TL;DR: Margin Calls are merely steps towards what we really want…a forced buy-in! As long as the shorts continue to meet margin requirements, they will be able to continue to kick the can down the road. A price spike that pushes them beyond their ability to meet the margin requirements, a massive depreciation of their other positions, or regulatory action is needed to trigger the forced selling.This is the way to MOASS:

1. BUY & HODL GME
2. STOP BUYING OTHER GIMICKS/DAY-TRADING/ETC. (Don’t feed the bears)
3. WAIT PATIENTLY FOR FORCED BUY-IN, MARGIN CALLS ARE JUST STEPS TOWARDS THAT END. WHEN SHORTS CAN NO LONGER MEET THE CALL…

🚀🚀 🚀🚀 🚀🚀 🚀🚀

Let me know if I missed anything…

Edit: added #DontFeedTheBears

Edit 2: u/InvincibearREAL pointed out that I forgot to include the most obvious movie to be watched (especially considering the post topic): Margin Call … so I added it to the listEdit 3: The best TL;DR in ape language courtesy of u/cryptocached“Margin call is a shart. It stinks and can be a little messy, but it’s really just a warning. If you don’t heed that warning and take care of your business in a timely fashion, you’ll shit your pants in a forced liquidation.”

Edit 4: Created visual TL;DR Post