margin call
A broker's demand that an investor deposit additional funds or sell securities when the account value falls below the required minimum maintenance margin.
Example
“When the stock dropped 30%, the investor received a margin call demanding $5,000 in additional funds.”
Memory Tip
A margin call = the broker CALLING you demanding more money. Not a fun call to get.
Why It Matters
Understanding margin calls is critical if you borrow money from your broker to buy securities, as a sudden demand to deposit funds can force you to sell positions at the worst time or face liquidation of your account. This directly impacts your ability to manage risk and avoid catastrophic losses during market downturns.
Common Misconception
Many people believe a margin call only happens during major market crashes, but in reality it can occur whenever your account equity drops below maintenance requirements, which can happen even during normal market volatility or due to losses in individual positions you are holding.
In Practice
If you buy 1000 shares of a stock at 100 dollars per share using 50 percent margin, you invest 50000 dollars of your own money and borrow 50000 dollars from your broker. If the stock price drops to 75 dollars, your account is now worth 75000 dollars, and if your maintenance margin requirement is 30 percent, you need to maintain 22500 dollars in equity, but you only have 25000 dollars, triggering a margin call demanding you deposit 2500 dollars or sell shares immediately.
Etymology
From 'margin' (borrowed funds) + 'call' (demand for payment). The broker CALLS for more money.
Common Misspellings
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Related Terms
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See Also
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