# What Is a Margin Call and How to Avoid One (with Examples).

Margin Call: What It Is and How to Meet One

A margin call is a demand from your broker for additional funds to cover losses in your margin account.

If you don't meet the margin call, your broker can sell securities in your account to cover the losses.

Here are two examples of how a margin call can happen.

Example 1

You buy 100 shares of ABC stock for \$10 per share.

You put down \$1,000 as a margin deposit and your broker loans you the remaining \$9,000.

The stock price falls to \$9 per share.

Now your account has a value of \$900 (\$9 per share x 100 shares), but you owe your broker \$9,000.

This means your account is "underwater" by \$8,100.

Example 2

You buy 1,000 shares of XYZ stock for \$5 per share.

You put down \$5,000 as a margin deposit and your broker loans you the remaining \$45,000.

The stock price falls to \$4.50 per share.

Now your account has a value of \$4,500 (\$4.50 per share x 1,000 shares), but you owe your broker \$45,000.

This means your account is "underwater" by \$40,500.

What happens if you get a margin call? If you get a margin call, it means that your broker is demanding that you deposit more money into your account, because the value of your securities has fallen below the minimum required amount. If you don't deposit the money, your broker has the right to sell some of your securities in order to cover the shortfall.

What's margin call based on? A margin call is a demand made by a broker or other financial institution that an investor deposit additional funds or securities so that the margin account is brought up to the minimum maintenance margin.

The initial margin is the percentage of the value of a security that a trader must deposit in order to buy or sell that security. The maintenance margin is the percentage of the value of a security that a trader must maintain in his account in order to keep his position open.

For example, if the initial margin is 50% and the maintenance margin is 40%, then a trader must deposit \$500 in order to buy \$1,000 worth of a security. If the value of the security then falls to \$900, the trader will receive a margin call, requiring him to deposit additional funds in order to bring his account up to the initial margin.

The size of the margin call will depend on the percentage of the value of the security that must be deposited in order to meet the minimum maintenance margin. For example, if the initial margin is 50% and the maintenance margin is 40%, then a trader who is long \$1,000 worth of a security will receive a margin call for \$100 if the value of the security falls to \$950.

The purpose of the margin call is to protect the broker or financial institution from losses that may occur if the value of the security falls further. It is also designed to ensure that the trader does not take on more risk than he can afford to lose. What is a margin call on a short position? A margin call on a short position occurs when the price of the underlying asset rises above the margin call price. The margin call price is the price at which the broker will close out the position to prevent further losses.

What happens if you don't pay a margin call? If you don't pay a margin call, your broker may close out your position to cover the loss. This is called a margin call. If you don't have enough money in your account to cover the margin call, your broker may liquidate your assets to cover the loss. What is a margin call and how does it work? A margin call is a demand by a broker or other financial institution that an investor deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin.

A margin call happens when the value of an investor's margin account falls below the account's maintenance margin. The maintenance margin is the percentage of the account's total value that the investor must keep on deposit. For example, if an investor has a \$100,000 margin account with a maintenance margin of 30%, that investor must keep at least \$30,000 in the account.

If the value of the account falls below the maintenance margin, the investor will receive a margin call from the broker. The investor must then deposit additional funds into the account to bring it up to the minimum margin.

If the investor does not deposit additional funds, the broker may sell some of the securities in the account to bring the account up to the minimum margin.