The i-banking equivalent... of defaulting on your mortgage and getting foreclosed on: getting your multi-billion dollar positions sold off after missing a margin call. Trading on margin = trading (partly) with borrowed money (usually from a broker). Margin call = when equity in your margin account falls below a minimum level, and the lender asks you to put up more of your own cash or sell positions to mitigate risk. They can happen when the value of holdings in a margin account plunges.
It's a cascade effect... This big margin default is trickling down from the fund to banks to regular investors. For banks: this could mean billions in losses. Credit Suisse and Nomura warned of significant hits to their quarterly financials — both stocks plunged as much as 15% yesterday. Now, banks' damage-control is causing collateral damage: retail investors.
High roller, high risk... Investment banks like Goldman lend companies billions in cash and stocks — and they make billions from these positions. Trading on margin means greater potential gain, but also much greater potential losses (that can mount fast). Before Monday’s warning, Credit Suisse said its pretax profit in January and February was the best in a decade. Now it could face billions in losses, because it may not have hedged its risk enough.