Wall Street hedge funds are grappling with the biggest margin calls since the COVID-19 pandemic, following a downturn in global financial markets ignited by US President Donald Trump’s “Liberation Day” and reciprocal tariffs. The fallout, which also led to a $6 trillion 48-hour market sell-off at the end of the business week, opened a cascade of financial stress across hedge funds, equities, and commodities.

On Monday, several of the largest Wall Street banks issued emergency margin calls, demanding that hedge fund clients put up additional collateral after the value of their positions plummeted. According to sources at multiple prime brokerages, today is the largest margin call event since early 2020, when markets collapsed amid COVID-induced lockdowns.

The catalyst came as Trump revealed cut-throat tariffs on America’s trading partners, which led to harsh responses from several nations, including China, last Friday. The tit-for-tat escalation erased an estimated 9% from US equity market index S&P 500 intraweek, its worst seven-day performance since the initial COVID panic five years ago.

Prime brokerages liken rout to COVID and regional bank crisis

One senior executive at a prime brokerage firm told the Financial Times that last week’s selloff, affecting interest rates, equities, and oil, is almost picture-perfect similar to the early pandemic’s chaos. “Rates, equities, and oil were down significantly. It was the breadth of moves across the board that caused the scale of the margin calls,” the executive reckoned.

Data from Morgan Stanley’s prime brokerage division showed Thursday was the worst single day for US-based long/short equity hedge funds since it began tracking performance in 2016. The average fund fell 2.6% that day alone.

On the same day, Morgan Stanley reported that hedge fund equity selling rivaled the scale of the US regional bank crisis in 2023 and the COVID market shock in 2020. The rush to liquidate positions suggests that funds had little time to rebalance before markets moved violently against them.

Some hedge funds saw the damage happening before last Wednesday; they had already started reducing their exposure and de-leveraging weeks prior.

Gold falls from record highs after liquidity crunch ensues

Even gold, an asset investors rush towards in stock market downticks, was not safe from the Trumpian market chaos. According to data from TradingEconomics, on Friday, gold fell 2.9%, taking the market that has seen the metal rally time and again when investors panic, by surprise. Three consecutive sessions of losses took gold’s spot value to $3,030 per ounce by Monday.

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