What is a Margin Call?
A margin call is a demand from a broker for an investor to deposit additional funds or securities into their margin account to bring it back up to the minimum required level. This happens when the value of the securities in the margin account falls below a certain percentage of the loaned amount, known as the maintenance margin.
When trading stocks on margin, the investor must maintain a certain level of equity in the account, usually set at around 25% of the total value of the securities. If the value of the securities drops and the equity in the account falls below this level, the broker will issue a margin call, requiring the investor to deposit additional funds or securities into the account to bring the equity back up to the minimum level.
For example, if an investor buys $10,000 worth of stock using $5,000 of their own money and $5,000 borrowed from a broker, the equity in the account would be 50%. If the stock drops in value and the equity falls below 25% (the maintenance margin), the broker would issue a margin call, asking the investor to deposit more money or securities into the account to bring the equity back up to 25%.
If the investor cannot or does not meet the margin call, the broker has the right to sell some or all of the securities in the account to bring the equity back up to the minimum level. This is called a forced sale or liquidation.
In summary, a margin call is a demand from a broker for an investor to deposit additional funds or securities into their margin account to bring it back up to the minimum required level, if the value of the securities in the account falls below a certain percentage of the loaned amount. If the investor does not meet the margin call, the broker has the right to sell the securities in the account to bring the equity back up to the minimum level.
When trading stocks on margin, the investor must maintain a certain level of equity in the account, usually set at around 25% of the total value of the securities. If the value of the securities drops and the equity in the account falls below this level, the broker will issue a margin call, requiring the investor to deposit additional funds or securities into the account to bring the equity back up to the minimum level.
For example, if an investor buys $10,000 worth of stock using $5,000 of their own money and $5,000 borrowed from a broker, the equity in the account would be 50%. If the stock drops in value and the equity falls below 25% (the maintenance margin), the broker would issue a margin call, asking the investor to deposit more money or securities into the account to bring the equity back up to 25%.
If the investor cannot or does not meet the margin call, the broker has the right to sell some or all of the securities in the account to bring the equity back up to the minimum level. This is called a forced sale or liquidation.
In summary, a margin call is a demand from a broker for an investor to deposit additional funds or securities into their margin account to bring it back up to the minimum required level, if the value of the securities in the account falls below a certain percentage of the loaned amount. If the investor does not meet the margin call, the broker has the right to sell the securities in the account to bring the equity back up to the minimum level.
The information contained on this website is for general informational purposes only and does not constitute financial or investment advice. The content is not intended to be a substitute for professional financial advice. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk. Before making any investment decisions, you should always seek the advice of a professional financial advisor. Investing always involves some level of risk, and the value of your investments can fluctuate. Past performance is not indicative of future results. We will not be held responsible for any losses incurred as a result of following any information provided on this website. You should independently verify all information before relying on it. By accessing and using this website, you acknowledge and agree to these terms and conditions.