Trump Monday: Wall Street Hedge funds suffer steep margin calls

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.

The selloff could have partly been driven by profit-taking and the need to meet margin calls in other asset classes. Investors may have liquidated gold holdings to raise cash and cover losses elsewhere. Suki Cooper, a precious metals analyst at Standard Chartered, said gold was being used to “meet margin calls” as funds scrambled for liquidity.

Despite the pullback, gold remains up nearly 16% since the start of 2025, according to a CFD tracking the benchmark contract.

BlackRock CEO talks economic anxiety

Just days before Trump’s announcement took the markets through a nosedive, BlackRock CEO Larry Fink warned investors about the global economy’s fragility. In his annual letter released on April 1, Fink told shareholders that “protectionism has returned with force,” explaining how deep the concern among corporate and financial leaders was.

“People are more anxious about the economy than at any time in recent memory,” he wrote. While participation in the US stock market has expanded, Fink noted, many Americans have not benefited equally.

“This extraordinary era of market expansion has coincided with, and was largely fueled by, globalization,” he continued, “And while a flatter world lifted 1bn people out of $1-a-day poverty, it also held back millions in wealthier nations striving for a better life. Capitalism did work, just for too few people.”

Wealth managers in the United Kingdom are reporting a spike in inquiries from US-based investors seeking to move assets offshore. Firms including Rathbones, RBC Brewin Dolphin, Evelyn Partners, and Schroders Cazenove say American clients are increasingly looking to shield their portfolios from domestic volatility.

Fears of a prolonged trade conflict have investors redirecting capital into haven assets like Gold funds, which have witnessed their fastest inflows since the height of the pandemic. 

Cryptopolitan Academy: Want to grow your money in 2025? Learn how to do it with DeFi in our upcoming webclass. Save Your Spot