Defined- A broker's demand on an investor using margin to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin. This is sometimes called a "fed call" or "maintenance call".
EG - You would receive a margin call from a broker if one or more of the securities you had bought (with borrowed money) decreased in value past a certain point. You would be forced either to deposit more money in the account or to sell off some of your assets.
Now, how does this affect the current market conditions? Simple. These hedge funds control a larger percentage of shares than anything else. Why do they control so much? Well think about it. These hedge funds only allow for the super rich to invest. Many require a minimum investment of 100,000 or even 1,000,000,000 dollars. So it only makes sense that they super rich would control more of the market than the average investor. They are also very risky investment vehicles.
Well wait a minute, I'm not super rich, this shouldn't affect me. Well just as in taxes this affects everyone. How? Trickle down theory. Lets say this hedge fund is heavily leveraged (on margin aka borrow money) on a stock. That stock that is owned by many people, maybe not even yourself. But you might own a few shares of a mutual fund that owns that company or even owns a company in the same market sector as that company. Now that hedge fund gets a margin call because the market value of the stocks have gone down. All of the sudden they are forced to do one of 2 things
1) Sell shares to get the money to cover the margin call.
2) Pump more cash in to cover the call.
They don't have the cash because its all invested. So they sell shares, dumping both winner stocks and loser stocks. You might say, big deal, stocks are bought and sold every day. Yes this is true, but not on this sort of scale. We are talking hundreds of thousands of shares or even millions. Now lets apply some econ 101 here. When there is a great supply of something, it is inherently worth less than it would be if it were in short supply. These hedge funds have to sell, at any price because they have a few days to cover their margin call.
Now imagine if there is usually 100,000-2,000,000 shares being traded daily in a single stock. Now what if there are more shares for sale than there are buyers? These hedge funds HAVE to sell, they have no choice in the matter so they will take a lower cost to ensure that they can generate the revenue. So the price goes down even further.
This then affects other hedge funds, who then get margin calls and cant sell their shares for a reasonable price. Now these hedge funds often own large portions of major corporations. So all of the sudden there is more shares for sale and there not enough buyers for these shares. This drives the price down and down and down. This spurs exponential decline in share values and basically fucks everyone in the market. Why? Because the average investor owns at least one of the companies affected. If they don't then the company they own may own some of these companies or may be somehow related to these companies as a supplier, investor, lender, etc. Some people start to lose their jobs because a CEO of a company is worried about their share price. Then with the job cuts everyone slows down. Mortgages start to default because people have no jobs. Costs of living go up and standards of living go down. This goes world wide because hedge funds are not unique to the rich in America nor are they only invested in American companies.
Investment companies start to change their rules on margin lending. This creates even more margin calls and then even more mass sell offs ensue. Its a true snowball effect.
My fingers are tired. I hope you learned something. /rant