What does a margin call mean? A margin call is a demand from your broker when you have a large enough loss to meet a certain level of risk. It’s a warning to you, as a trader, and a form of protection for the brokerage firm. It may be via telephone or a request to square off the trade and eliminate any losses. You can choose the method you prefer. If you choose to sell, you can either meet the call in full or partially.
If you have an account that requires a minimum amount of equity to open a position, you may be subject to a margin call. If the value of the collateral drops below the minimum amount of equity, the brokerage firm can cancel the margin loan and sell your securities. You will have to add more equity or cash to cover the shortfall. The brokerage firm can also sell the securities without notifying you. In addition, you will be charged interest on the shortfall.
The price of one share in a company is 5 US dollars. This means that you need 50,000 US dollars to purchase ten thousand shares. The buyer has fifty percent of the required money on hand and borrows the remaining 50 percent. The brokerage requires that you maintain a 25 percent margin to keep your stock in the market. If you fail to meet the minimum maintenance margin requirement, your account will be subject to a margin call. In such a case, you must immediately sell any securities you have not sold in order to meet the call.