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What is a Margin Call?

A margin call is a request for extra funds or securities from a broker or custodian in order to satisfy a margin account's minimum equity requirement. Investors utilize margin accounts to get loans from brokers or custodians to fund the purchase of securities, using the securities stored in the account as security for the loan.

When a margin account is opened, the investor is required to keep a minimum amount of equity in the account. This equity is often stated as a percentage of the total market value of the securities held in the account. The broker or custodian determines the equity requirement, which varies depending on the assets held and the investor's risk profile.

If the value of the securities held in the account falls below the required equity level, the investor will receive a margin call from the broker or custodian. The margin call will require the investor to deposit additional funds or securities into the account to bring the equity level back up to the required amount. If the investor fails to meet the margin call, the broker or custodian may liquidate some or all of the securities in the account to cover the outstanding margin balance.

Margin calls can be triggered by a variety of factors, including market volatility, changes in the value of the securities held in the account, and changes in the interest rates charged by the broker or custodian. In some cases, a margin call may be triggered by a sudden and unexpected event, such as a market crash or a corporate scandal.

Margin calls can be a source of stress and financial strain for investors, particularly if they are not prepared for the possibility of a margin call. Investors should carefully monitor the equity level of their margin account and be prepared to deposit additional funds or securities if necessary to meet a margin call.

A margin call is a demand from a broker or custodian for an investor to deposit additional funds or securities to meet the minimum equity requirement of a margin account. Margin accounts are used by investors to borrow money from a broker or custodian to buy securities, using the securities held in the account as collateral for the loan. Margin calls can be triggered by a variety of factors, including market volatility, changes in the value of the securities held in the account, and changes in the interest rates charged by the broker or custodian. Investors should be prepared to meet a margin call and carefully monitor the equity level of their margin account to avoid financial strain and potential liquidation of their securities.

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What is 'Buying on Margin' and Margin Trading?
What is Minimum Margin?
What Does Maintenance Margin Mean?

Disclaimers and Limitations

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