Quick Definition

A margin call occurs when the value of an investor's margin account falls below the broker's required amount, prompting the investor to add funds or securities to meet the minimum margin requirement.

Examples

• 1An investor buys $10,000 worth of stock using $5,000 of their own money and $5,000 borrowed from the brokerage. If the stock value drops significantly, the brokerage may issue a margin call requiring the investor to deposit more funds.
• 2During a market downturn, an investor holding several margin-purchased stocks may receive multiple margin calls if the securities' values fall below the maintenance margin.
• 3A day trader uses margin to amplify potential gains but faces frequent margin calls during volatile trading days, necessitating quick decisions on whether to add more capital or sell some assets.

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