A margin call is a demand from a broker or other financial institution to a trader to deposit additional funds or securities to cover potential losses. It is triggered when the value of the trader's account falls below the broker's required minimum level.
A margin call is a demand from a broker or other financial institution to a customer to deposit additional funds or securities into a margin account. This is done when the value of the securities in the account falls below a certain level, known as the maintenance margin. The purpose of a margin call is to protect the broker or financial institution from losses due to the customer’s inability to pay for losses incurred in the account.
A margin account is a type of brokerage account that allows investors to borrow money from their broker to purchase securities. The investor is required to maintain a certain amount of equity in the account, known as the maintenance margin. This is usually set at a certain percentage of the total value of the securities in the account. If the value of the securities in the account falls below the maintenance margin, the broker will issue a margin call.
The margin call requires the investor to deposit additional funds or securities into the account in order to bring the value of the securities back up to the maintenance margin. If the investor is unable to do so, the broker may sell some of the securities in the account in order to bring the value of the securities back up to the maintenance margin.
In addition to protecting the broker from losses, margin calls also serve to protect the investor from taking on too much risk. By requiring the investor to maintain a certain amount of equity in the account, the investor is less likely to take on too much risk and incur large losses.
In summary, a margin call is a demand from a broker or other financial institution to a customer to deposit additional funds or securities into a margin account. This is done when the value of the securities in the account falls below a certain level, known as the maintenance margin. The purpose of a margin call is to protect the broker or financial institution from losses due to the customer’s inability to pay for losses incurred in the account, as well as to protect the investor from taking on too much risk.