Recently, I saw someone lose everything due to a margin call, which reminded me of the shocking Bill Hwang incident on Wall Street in 2021. This guy lost 20 billion USD in just two days, becoming one of the fastest modern-day wealth destroyers. Many people only know that he "liquidated his positions," but the real question is—how much did he actually lose, and how did it happen?

When it comes to margin calls, many people don't really understand what they are. Simply put, margin trading is like taking out a mortgage to buy a house—you put in some of your own money, and the broker loans you the rest to buy stocks. It sounds good, but the problem is that if the stock price drops, you face a margin maintenance requirement. If you don't have enough money to cover it, the broker will forcibly sell your stocks—that's called a margin call, or liquidation.

Let me give a real example. Suppose you are bullish on Apple stock, currently at $150 per share, but you only have $50. The broker loans you $100, allowing you to buy one share. If the stock rises to $160, you sell it, pay back the broker $100 plus interest, and keep the rest as profit, which is a 19% gain—much higher than Apple's own 6.7% increase. But this is the allure of margin trading—and also its biggest danger.

Conversely, if the stock drops to $78, the broker will require you to add more margin. For example, in Taiwan stocks, if the margin maintenance ratio falls below 130%, a margin call is triggered. If you don't have the money to top up, the broker will sell your stocks directly—that's forced liquidation. From an investor's perspective, this is called a margin call or liquidation. How much do you lose in a margin call? It depends on how much the stock price drops and your leverage multiple.

Back to Bill Hwang’s story. He was a hedge fund manager with a simple strategy—pick good companies and use massive leverage to amplify returns. This approach allowed his assets to grow from $220 million to $20 billion in ten years. But high leverage is most feared during black swan events. In 2021, market volatility caused his holdings to shake, and brokers, trying to protect themselves, forced liquidations. The problem was, he held such a large volume of stocks that the market lacked enough buy orders to absorb the sell-off, causing prices to plummet and triggering a chain reaction of liquidations.

This not only affected his underperforming stocks but also forced him to liquidate stable holdings to meet margin requirements. In the end, all his stocks declined sharply in a short period. That’s why margin calls are so terrifying—once they start, they can trigger a domino effect that spirals out of control.

How big is the impact of a margin call on stock prices? First, when a large volume of margin positions are forcibly liquidated, stock prices tend to overshoot on the downside. Brokers don’t care about investors’ feelings—they just want to quickly recover their funds, so they sell aggressively, pushing prices far below fair value. This can trigger a new wave of margin calls, causing prices to fall further. Second, after a margin call, the stock ownership becomes very fragmented. Large, stable shareholders and long-term investors get shaken out, and the stocks flow into the hands of retail investors. Retail investors tend to be short-sighted, buying and selling on small fluctuations, which discourages big capital from entering, and the stock may continue to drift downward.

So, how much do you lose in a margin call? Essentially, it depends on how much leverage you used, how far the stock price falls, and the market’s liquidity. Bill Hwang’s case shows that even a big player on Wall Street can be ruthlessly taught a lesson if leverage is overused.

How can you use margin trading wisely without getting liquidated? First, if you’re bullish on a stock but have limited funds, you can buy in stages with margin—so if the price keeps falling, you still have ammunition to add to your position. Second, choose stocks with high liquidity and large market capitalization; otherwise, if a big player gets margin called, the stock can swing wildly. Third, carefully calculate the interest costs of margin loans. Some stocks hardly fluctuate, and the dividends earned in a year may not even cover the interest, making the investment pointless. Fourth, if the stock price stalls at a resistance level and starts consolidating, it’s time to take profits and sell, because you still have to pay interest. If the price breaks below support, a short-term rebound is unlikely, and you should cut losses immediately.

Leverage is a double-edged sword. Used well, it can accelerate wealth accumulation; used poorly, it can lead to rapid losses. Buying stocks on margin is inherently a high-risk strategy, and the risks of margin calls and liquidation are always present. Before investing, you must do your homework—otherwise, you’re just gambling your own money on the market, which is not investing, but betting.