Margin call(redirected from margin calls)
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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.