Margin Call

A margin call is a situation in which the value of a trader’s margin account falls below a broker's required amount, triggering safeguards.

In this instance, investors are required to deposit more money in the account or sell some of the assets held in their account to compensate for losses and raise collateral.

Margin calls can occur across virtually any asset in which leverage is used. Most commonly this includes stock and foreign exchange.

Brokers can make margin calls to reduce the risk of an investor defaulting on the loan they got under a buying-on-margin agreement.

In isolated situations, retail brokers can also sell investor’s securities, or even take legal action, if they don’t comply with margin requirements.

A margin requirement can be summed up as the minimum equity sum that investors must keep in their margin account preceding a trading transaction.

Is Your Account Safe Against a Margin Call?

Margin requirements may be referred to as maintenance margin, minimum maintenance, or maintenance requirement. This is a requirement for broker trading in any asset class.

In terms of equities, the New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA) have a fixed margin requirement of 25% of the sum value of the securities present in a margin account.

While 25% is the minimum industry requirement, trading brokerages sometimes require between 30% to 40% of the total securities value as a margin requirement as a way to reduce the risk of an investor potentially defaulting on the loan.

To understand margin calls is to understand margin trading. For example, an investor's margin account contains assets bought with borrowed money.

While margin trading offers the potential for bigger returns, it also increases the risk of losses, including running the risk of a negative balance.