Margin Call
What Is a Margin Call?
A margin call occurs when the value of securities in a margin account falls below the minimum level required by the brokerage firm. When this happens, the broker requires the investor to deposit additional funds or sell assets to restore the account’s required equity level.
Margin calls are a risk associated with leveraged investing.
Why It Matters
Margin calls can force investors to sell investments at unfavorable prices, especially during market declines. Understanding margin requirements helps investors manage leverage and avoid unexpected financial pressure.
Investors using margin must monitor their account balances carefully.
How Margin Calls Work
A margin call typically occurs when:
- the value of the investor’s securities declines
- the account equity falls below maintenance requirements
- the broker demands additional funds or asset sales
If the investor does not meet the margin call quickly, the broker may liquidate securities to reduce risk.
Example
An investor purchases stocks using borrowed funds in a margin account. When the stock price falls significantly, the account value drops below required levels, triggering a margin call.
Margin Call vs Margin Requirement
- A margin call is a demand for additional funds.
- A margin requirement is the minimum amount of equity that must be maintained in the account.
FAQs About Margin Calls
How quickly must margin calls be met?
Often immediately or within a short period.
What happens if a margin call is not met?
The broker may sell securities automatically.
Can margin calls occur during market volatility?
Yes. Rapid price declines can trigger them.
Related Terms
