Hedge Funds Get Special Treatment During Margin Calls

A major feature of the run-up in stocks like AMC has been a battle between short selling hedge funds and bullish retail investors. The small investors have often sensed they’re not being treated fairly.

And when it comes to margin calls, it turns out they’re quite right.

A margin call happens when a trader borrows to fund a trade and the trade moves against him. If he doesn’t post more funds, the broker will close out his trade, whether he likes it or not.

An average investor generally gets two to five days to resolve a margin call. But the rules for the big boys are very different.

According to a new report from Credit Suisse, it gave troubled hedge fund Archegos Capital Management weeks to meet a margin call. The tactic Archegos used to deflect the demands for more cash was incredibly simple: claim they were too busy to respond.

On February 23, 2021, the PSR [Prime Services Risk] analyst covering Archegos reached out to Archegos’s Accounting Manager and asked to speak about dynamic margining. Archegos’s Accounting Manager said he would not have time that day, but could speak the next day. The following day, he again put off the discussion, but agreed to review the proposed framework, which PSR sent over that day. Archegos did not respond to the proposal and, a week-and-a-half later, on March 4, 2021, the PSR analyst followed up to ask whether Archegos “had any thoughts on the proposal.” His contact at Archegos said he “hadn’t had a chance to take a look yet,” but was hoping to look “today or tomorrow.”

No retail investor would ever get away with this. If Robinhood or any other retail broker didn’t get a response in an exact time window, they would liquidate the shares. And the special treatment extended to Archegos here would likely apply to any big client, like Citadel, Melvin Capital, or others.

This gives hedge funds a systematic advantage. They can borrow money and magnify their bets, and if the trades go against them, they can stall indefinitely and hope their position recovers.

All I can tell you is what I do: never buy on margin. Investing is risky enough without adding to the risks with borrowed money. But whatever strategy one chooses, hedge funds and small investors should at least be treated equally.

More on AMC and hedge funds:




Photo: “Bank Robbery In Progress” by foilman is licensed under CC BY-SA 2.0

If you found this post interesting, please share it on Twitter/Reddit/etc. using the buttons at the bottom of the page. This helps more people find the blog! And please leave your comments at the bottom.

Save Money on Stuff I Use:


This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account. I will also get a fee waiver for 90-365 days, depending on what type of account you open.


The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.

Use this link to save 5%! I’ll also get 5% of however much you spend, at no cost to you.

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. I’ll also get $10.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s