Margin Call definition

Margin Call is a demand by broker to deposit cash in your account to bring it up to margin requirements. Margin Call will typically happen when you max up your margin and values of stocks in your account decline.

For example, say you have $10,000 cash balance in 200% margin account, meaning you have a buying power to buy up to $20,000. You then invest the whole $20,000 to buy 200 shares of ABCD stock at $100/share. Say ABCD then declines to $75/share. Your margin account value will then be $15,000, and your cash value will be $5,000, so you will then effectively have 300% margin. You will then get a margin call to immediately deposit $2,500 cash in your margin account (that will bring your cash balance to $7,500, satisfying your 200% margin requirement of your $15,000 margin balance).

If you fail to deposit $2,500, your broker will sell a large portion of your ABCD stock for you to bring you in-line with 200% margin.

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