UK - Pandemic and Pandemonium: Investors struggle with margin calls

One of the many economic outcomes of the 2008 financial crisis was low interest rates and, consequently, cheap finance. This led some savers and investors to invest or speculate using leveraged products – that is, investors paid only a portion of the investment price themselves with, effectively, the banks or other financial institutions paying the balance.

Leveraged financial products are highly complex and bring mixed blessings for investors. In good times, an investor benefits from the increases in value of the total investment – not just the part they paid for. In bad times, when asset values decrease, an investor either faces margin calls or, if unable or unwilling to raise that margin, the prospect of the bank closing out the investment, either wiping out the investor’s original investment and any previously-posted collateral or, in addition, rendering the investor liable for further resulting losses. The market changes following the Covid-19 pandemic of March 2020 have led to market collapse – generating problems for investors in speculative leveraged products.   
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