Margin Calls

A margin call is a demand that you deposit cash or securities with your broker. Your broker makes a margin call for collateral when you first borrow money.

If the value of your collateral falls below the broker's minimum requirement (usually about 30 percent of the loan), you will receive a margin call by telephone, telegram, or other means, to request additional collateral in the form of cash or securities to meet the requirement. However, only a percentage of a security's market value can be used to meet your margin call. If you fail to meet the margin call, your broker is authorized (via the margin agreement form) to sell the margined securities and any other collateral needed to repay the loan plus interest and commissions.

If you can't deposit additional assets to meet the margin call, the securities you own will be sold to cover your losses, which can compound your losing position. Margin calls are one hazard of margin trading.

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