Margin Call

Key Highlights

• A margin call is a broker’s request for you to add more money or securities to your margin account when your investments lose too much value.

• It ensures your account meets the minimum equity (your own money) required by the broker.

What is Margin Call?

A margin call is a broker’s request for you to add more money or securities to your margin account when your investments lose too much value. It ensures your account meets the minimum equity (your own money) required by the broker.

How it Works?

• With a margin account, you're essentially investing with a boost- you put in some of your own money, and your broker lends you the rest to help you buy more than you could on your own.

• The broker establishes a minimum required equity level known as the maintenance margin.

• If your investments drop in value and your equity falls below this level, you get a margin call.

• If your account balance falls below the required level, you'll need to step in—either by adding more cash, depositing extra securities, or selling some of your investments to bring things back on track.

• If you don’t comply in time, the broker may sell your investments to cover the loan, which could mean selling at a loss.

Key Points

• Margin calls are triggered by falling investment values or borrowing too much for new purchases.

• Regulators like FINRA set minimum equity rules, but brokers can demand more.

• They protect brokers by ensuring your account has enough collateral for the loan.

Example

You buy Rs 20,000 in stocks with Rs 10,000 of your money and Rs 10,000 borrowed. If the stocks’ value drops to Rs 14,000, your equity is Rs 4,000. If the broker’s minimum is Rs 4,200 (30% of Rs 14,000), you’ll need to add Rs 200 to avoid a forced sale.