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).

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.

References in periodicals archive ?
A margin call is a demand by a broker that an investor deposits more cash to cover potential losses on trades.
Further downgrades left MF Global's credit rating at "junk" or speculative grade, indicating a company at risk of default, and triggered a new round of margin calls. Amid growing concerns about the company's viability, MF Global experienced the brokerage firm equivalent of a "run on the bank": customers withdrew funds or closed accounts altogether, lenders cancelled credit lines, firms stopped trading with MF Global, and counterparties slowed or withheld payments to MF Global.
even in the best-case scenario, where the option expires leaving the seller to bank the premium, unexpected margin calls can disrupt the strategy during its volatile lifespan.
Li Shiu-li, general manager of Jih Sun Securities Investment Consulting, advised investors to stay away from life-insurance shares and weak electronic shares, as they will face heavy pressure for margin calls. Many stocks, such as China Life and Compal, witnessed surge in margin trading at high price levels.
The financers, including non- banking finance companies ( NBFCs) and stock brokers who arrange funds for promoters, offloaded huge volume of pledged stocks due to a margin call sending share prices down, market analysts said.
"That resulted in some hefty margin calls that had to be posted that night; there is no wiggle room in these futures exchanges," says Tim Emslie, research manager at Country Hedging, which works with hundreds of co-op elevators throughout the Midwest and Northwest.
Burns told the Wall Street Journal it was the first time since 1987 that he's faced a margin call, and suggested, optimistically, that the market has reached bottom.
Margin calls, both by brokers to investors and by exchanges to brokers, added to the pressure, with brokers saying they were unable to trade until they paid their margin calls.
Some grain elevators, a key conduit for farmers to sell their grain to the market and hedge their risks through futures contracts, are having trouble raising enough working capital to cover their margin calls as the price of grain keeps rising.
Relentless falls in the Mothers market and other Japanese venture firms-oriented stock markets made some investors face margin calls, or requirements to deposit additional money into their margin trading accounts, brokers said.
It said: "As the prices of crude oil were at an all time high at above 55 US dollars per barrel, the company faced significant margin calls on its open positions and did not have the resources to satisfy the margin calls".
As WorldCom began to show signs of financial difficulty, the debtor's stockbroker sold his shares as they decreased in value to meet margin calls.