What Is Margin Call? (2024)

FAQs

What happens when you get a Margin Call? ›

A margin call occurs when the value of securities in a brokerage account brokerage account falls below a certain level, known as the maintenance margin, requiring the account holder to deposit additional cash or securities to meet the margin requirements.

A margin call is a broker demand requiring the customer to top up their account, either by injecting more cash or selling part of the security to bring the account to the required minimum. The customer is allowed a short grace period to take the required action to meet the margin requirements.

For example, if you have a house margin call of $6,000, and have a stock in another account with a house requirement of 40 percent, you must deposit $10,000 of that stock to meet the house margin call.

Margin calls are a risk management tool used by brokers to prevent traders from incurring losses that exceed the value of their account. They are designed to protect both the trader and the broker from potential losses that could result from trades made on margin.

Margin calls can also occur when a stock goes up in price and losses start mounting in accounts that have sold the stock short. Investors can avoid margin calls by monitoring their equity and keeping enough funds in their accounts to maintain the value above the required maintenance level.

A margin call occurs when the percentage of the equity in the account drops below the maintenance margin requirement. How much is the margin call? $12,000*30% = $3600 → amount of equity you were required to maintain. $3600 - $2000 = $1600 → You will have a $1,600 margin call.

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If You Fail to Meet a Margin Call

Should the account holder choose not to meet the margin requirements, the broker has the right to sell off the current positions.

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How do you respond to a margin call? ›

However, regardless of the type, if you're issued a margin call, you have to bring your account back up to the required minimum value. You can often do this by depositing cash or marginable securities or by closing other positions.

A margin call occurs when the equity in your investing account drops to a certain level and you owe money to your brokerage firm. Margin calls must be satisfied by depositing cash or securities into the account, or by selling off assets.

If your account balance fails to meet that new minimum, a margin call will be triggered. Buying on margin exposes you to the risk of a margin call at any time. If the investments used as collateral experience a decline, that can pull you below that maintenance requirement and trigger a margin call.

Margin calls happen when the percentage of the equity in the account drops below the maintenance margin requirement. At XTB, a margin call occurs when your margin level falls below 100%. A stop out is the act of closing, or liquidating, your positions. At XTB, a stop out occurs when your margin level falls below 50%.

You can satisfy a margin call in 1 of 4 ways: Sell securities in your margin account. Or buy securities to cover short positions. Send money to your account by electronic bank transfer (ACH) or wire.

If your margin account dips below a certain threshold you may receive a margin call, or a request to add more funds. If you don't respond to a margin call your broker may sell some of your securities or liquidate your entire account.

What happens if you don't meet a margin call? Your brokerage firm may close out positions in your portfolio and isn't required to consult you first. That could mean locking in losses and still having to repay the money you borrowed. Again, these examples are based on 50% margin debt is the maximum you can borrow.