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What Is a Margin Call?
A Margin Call is the term for an alert used to the case when the percentage of a stock trader's equity in a margin account falls below the minimum amount required by the stock broker. If this happens, investor is forced 'to cover' the debt incurred while he or she was trading. The phrase of Margin Call may sound like the kind of warning that only might relate to giant Wall Street investors, but in reality, more often it happens to small traders who have bought stock on margin, or used borrowed money.
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To put is simply, when a margin account balance dips below the required minimum amount, a stock broker issues a Margin Call to the investor that requires the account holder to deposit additional cash or stocks to meet the margin requirements. Margin Calls only may occur in accounts that use borrowed money to buy stock. If you don't trade on margin, obviously you are not exposed to a Margin Call, and you are never required to inject more cash to your account. Studies suggest that the number of margin calls typically increases significantly in fast-declining stock markets, especially on Day Traders' accounts while buy-and-sell investors' resilience - who maintain mid- to long-term time horizon - tends to be more powerful.
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A Margin Call can act as an indicator that stocks held in the margin account have dramatically declined in value. When a Margin Call enters the stock trader has three options to cover the margin, by
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depositing additional funds
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adding marginable stocks to the portfolio from another broker account
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selling some of the stocks held in the account.
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The term Margin Call stems from the practice of brokers in the days of yore, calling their clients to notify them of the margin decline, however today when the large majority of trades are executed 49 electronically though online stock trading platforms, most Margin Calls are sent by email.
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After Margin Call is issued by the brokerage, the client is given a little grace period that allows him or her to take the required action to meet the margin requirements. However if the client does not react to the Margin Call by adding top up to the margin account, the brokerage may dispose (sell) stocks fully or partially to restore the account to the required margin level, even without notifying the customer.
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From another view, 'you are on margin call' marks the status of your account, when fund in your account dropped below the margin requirement. When you trade on margin with leveraged products there are two types of margin,
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deposit margin, needed to open the position
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maintenance margin, needed to keep the position open.
Common mistake, to sustain the maintenance margin that will activate a margin call.
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WHAT IS MARGIN CALL
MARGIN CALL CAN OCCUR AT ANY TIME
