This is not true. The broker would try to liquidate your positions well before that happens. Failure to put up collateral means your position will be forcibly closed. It's called Maintenance Margin. The last thing the broker is going to allow is for its clients to incur a debt and be on the hook. The hedge fund instead will send you a letter that your money is gone. Same thing.
Brokers have no ability to liquidate a position on a company that declares bankruptcy after market hours. In fact, most major events happen during times when trading is either halted or the market is closed.
As sad as it is, there are people who have committed suicide over having a negative balance including this individual who carried a -$730,000 balance:
https://www.nytimes.com/2020/07/08/technology/robinhood-risk...
It's all tradeoffs - the broader the conditions at which a bank can recall your margin, the cheaper the interest and lower personal guarantee requirements (some may not hold you personally liable for negative balances - check your T&Cs). Funds can obviously borrow more, and at lower interest rates because of that though. Obviously their loans will be wound up on the way down no matter what, because the bank can't get money out of a negative balance like they would an individual.
Funds also don't tend to all-in on three tech stocks, so the fact they are very exposed to volatility with that type of leverage is less of an issue.
As for your other comment trying to be pedantic about funds owning three stocks, there are numerous publicly traded leveraged funds that trade just a single stock, one single stock [1]. They are known as single-stock ETFs and all of them use leverage. The purpose of these funds is specifically to provide an indirect form of leverage to investors. For example IRA accounts are forbidden from using leverage, but someone can use an IRA account to purchase a leveraged ETF, including a single stock ETF.
The point is it's not cut and dry that the market geared equity solution is superior (though, IMO, the individual advantage lays on the side of things without margin calls, but full recourse - you can ride through a downturn without being forced to sell, assuming you keep your job and other risks etc etc).
Those single stock ETFs are significantly more limited than full-market geared funds (1.5x rather than more typical 2-3x). Equity geared ETFs are definitely just straight up more convenient (and safer) for the vast majority of people and situations though, I agree with you on that.
I don't want a fancy explanation of how it works, I would like to know the name of a single brokerage that offers this product because as I said, I don't think it exists as it is frankly a pretty basic violation.
I did end up finding the specific agreement - it pertains to Australian retail clients (https://gdcdyn.interactivebrokers.com/Universal/servlet/Regi...), and clauses 3 and 7 lay out that retail clients are not liable for a negative balance arising from a margin liquidation. Retail clients for Australia have pretty limited margin (25 or 50k iirc), so this isn't super high risk for most people regardless (can't lose that much money).
The other stuff I talk about arises from other products in Australia as well - it's possible to borrow money and buy shares without being exposed to margin calls, so long as you make repayments on the loan. It's pretty different to a traditional margin account though, and only really applies to ETFs (NAB Equity Builder). I also imagined that existed elsewhere, but really I'm only speaking from what I've seen available in Australia.
Clause 3.A.e specifically states that trading on margin can result in a loss of funds greater than that deposited into your account and that you accept that risk.
In conjunction with Clause 7.K which states that you must reimburse the broker for any liabilities as a result of the liquidation undertaken by the broker.
You are always on the hook for the full amount of losses on margin.
Did you perhaps intend to reply to someone else?
the poster you're replying to implies that this might not be possible at all if the successful funds only are so because of random chance.
This is a common misconception or a poorly phrased statement. It's not true that someone who bought/held tech stocks, or an ETF beat virtually all managed funds or that holding on to ETFs beats virtually every managed fund. It's true that passing investing, in tech or ETFs would have beat the average managed fund, and it's also true that an investor is better off investing in an ETF/diversified portfolio, but there are exceptional managed funds that significantly outperform the market.
The problem is that you are no more likely to know which managed fund will outperform the market than you are to know which stock will outperform the market. Picking a fund that will outperform the market, especially after fees, is just as hard as picking stocks, and in fact it might be even harder due to the fees.
But this does not mean that all, or virtually all funds perform worse than the market or even a segment of it.