Margin call

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Margin call

A demand for additional funds because of adverse price movement. Maintenance margin requirement, security deposit maintenance.

Margin Call

An order by a brokerage for an account holder to deposit more cash or securities into a margin account when the value of the cash and securities currently in it falls below some defined percentage. Every margin account has a maintenance margin requirement, which is money or securities an investor must keep in his/her margin account in order to be able to borrow from the brokerage. FINRA requires that the maintenance margin must be at least 25% of the amount borrowed, while some brokerages require a maintenance margin of up to 50%. If the maintenance margin falls below this, the account may be subject to a margin call. If the account holder is unable to make the necessary deposit, he/she must close out enough positions in order to make the deposit, or risk the account becoming blocked.

margin call

A call for additional funds or securities in a margin account either because the value of equity in the account has fallen below a required minimum (also termed a maintenance call) or because additional securities have been purchased (or sold short).

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Margin call.

To protect the margin loans they make, brokers issue a margin call if your equity in your margin account falls below the required maintenance level of at least 25%.

If you get a margin call, you must deposit additional cash or securities to meet the call, bringing the balance of the account back up to the required level.

If you don't meet the call, securities in your account may be sold, and your broker repaid in full. For example, if you buy 1,000 shares on margin when they are selling at $10 a share, and the price falls to $7 a share, your equity would be $2,000 ($7,000 market value minus $5,000 loan is $2,000).

That's 28.6% of the market value. If your brokerage firm has a maintenance requirement of 30%, you would receive a margin call to bring your equity back to the required level -- in this case $2,100, which is 30% of $7,000.

You might also get a margin call if you trade futures contracts and the value of your account drops below the required maintenance level. However, margin requirements for futures are different than for stock.

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* B shares must be bought back because the lender needs them back or the investor has maintained insufficient collateral in the brokerage account, forcing a margin call.

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All it takes is one day's fall to trigger a margin call, as thousands of investors learned, to their regret, in the cruel month of April.

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