How can one person lose 20 billion in 48 hours? The real cost of margin calls

In March 2021, a shocking event occurred on Wall Street. Hedge fund manager Bill Hwang lost 20 billion USD in just two days, becoming one of the fastest losers in modern history. His story is essentially a live demonstration of a margin call meltdown.

What is a margin call meltdown? Why does it happen?

Simply put, a margin call meltdown is a liquidation event. It occurs when you buy stocks on leverage, and the stock price drops to a certain level, prompting the broker to forcibly sell your stocks.

How does margin work?

Imagine you are bullish on a stock, but have limited funds. You can then borrow from the broker—meaning you put in a portion of the money, and the broker lends you the rest to buy the stock.

For example: When Apple stock is at 100 yuan, you have 40 yuan, and the broker lends you 60 yuan to buy one share. If the stock rises to 110 yuan, you sell and pay back the broker 60 yuan plus interest, with the remaining profit. It sounds simple, but the problem is stocks don’t only go up.

When the stock drops to 78 yuan, the broker starts to worry about recovering the 60 yuan lent out, so they will require you to top up the margin. Using Taiwan stock market standards, if the maintenance margin ratio falls below 130%, a margin call is triggered. If you can’t add funds, the broker will directly sell your stocks—this is a margin call meltdown, also known as forced liquidation.

How does a margin call meltdown trigger a stock market storm?

Single liquidation turns into chain reaction

Bill Hwang’s story is astonishing because he is not an ordinary retail investor. He manages hundreds of billions of dollars in assets, using massive leverage to amplify gains. Over 10 years, he turned 220 million USD into 20 billion USD.

But high leverage fears black swans.

In 2021, the stock market experienced huge volatility, and his holdings faced significant losses. To protect themselves, brokers began forcibly liquidating his stocks. The problem was, he held an enormous amount of stocks—there simply weren’t enough buyers in the market to absorb the sell-off.

As his stocks were dumped en masse, prices plummeted, triggering a chain reaction of margin calls among other leveraged investors. To meet margin requirements, brokers didn’t just sell his underperforming stocks—they also forcibly liquidated good stocks. The result was a rapid, broad decline in all his investments.

Two major impacts of margin call meltdowns on the stock market

Impact 1: Overly oversold stocks

Ordinary investors tend to hesitate when stocks fall, but brokers don’t—they want to recover their money as quickly as possible, often executing market orders at the lowest prices. This causes stocks to be sold at very low prices, further fueling the margin call wave, creating a vicious cycle.

Therefore, long positions should avoid stocks with margin call risks, while short sellers can take advantage of the opportunity.

Impact 2: Disordered chips, large capital withdrawal

Stocks sold off by brokers at any cost flow into retail investors’ hands. Retail investors tend to be short-sighted, buying and selling on small fluctuations, which scares away institutional investors. As a result, stocks continue to drift downward until a major positive catalyst can attract new funds.

Stocks after a margin call meltdown are not recommended for short-term trading; the risk of deep declines is high.

How to effectively use margin without falling into a meltdown?

While margin trading is risky, using it correctly can make your capital more efficient:

Choose stocks with sufficient liquidity — opt for large-cap stocks to avoid a meltdown like Bill Hwang’s caused by lack of buyers.

Pay attention to interest costs — if the annual dividend yield is close to the margin interest rate, the investment may not be worthwhile. Timing and stock selection are especially important.

Set profit-taking points at resistance zones — when stocks reach resistance but cannot break through, they may enter a long consolidation phase. During this period, you pay interest, so it’s better to take profits rather than wait for a breakout.

Stop-loss if the stock breaks support — once a stock falls below support, a quick rebound is unlikely. Decisive stop-loss can prevent the risk of a margin call meltdown.

Discipline is the key to long-term success.

Conclusion

Leverage is a double-edged sword. It can amplify gains and accelerate wealth accumulation, but it can also speed up losses. A margin call meltdown indicates you have lost control over your risk—at this point, the decision-making power shifts from you to the broker.

Always do thorough research before investing, especially when using margin. Bill Hwang’s 20 billion USD loss is the most expensive lesson in this regard.