Loading the player...

What is a 'Margin Call'

A margin call is a broker's demand on an investor using margin to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin. Margin calls occur when the account value depresses to a value calculated by the broker's particular formula.

An investor receives a margin call from a broker if one or more of the securities he had bought with borrowed money decreases in value past a certain point. The investor must either deposit more money in the account or sell off some of his assets.


A margin call typically arises when an investor borrows money from a broker to make investments. When an investor uses margin to buy or sell securities, he pays for them using a combination of his own funds and borrowed money from a broker. An investor is said to have an equity in the investment, which is equal to the market value of securities minus borrowed funds from the broker. A margin call is triggered when the investor's equity as a percentage of total market value of securities falls below a certain percentage requirement, which is called the maintenance margin. While the maintenance margin percentage can vary among brokers, the federal laws established a minimum maintenance margin of 25%.

An Example of a Margin Call

Consider an investor who buys $100,000 of stocks by using $50,000 of his own funds and borrowing the remaining $50,000 from his broker. The investor's broker has a maintenance margin of 25% with which the investor must comply. At the time of purchase, the investor's equity is $50,000 (the market value of securities of $100,000 minus the broker's loan of $50,000), and the equity as a percent of the total market value of securities is 50% (the equity of $50,000 divided by the total market value of securities of $100,000), which is above the maintenance margin of 25%.

Suppose that on the second trading day, the value of the purchased securities falls to $60,000. This results in the investor's equity of $10,000 (the market value of $60,000 minus the borrowed funds of $50,000). However, the investor must maintain at least $15,000 of equity (the market value of securities of $60,000 times the 25% maintenance margin) in his account to be eligible for margin, resulting in a $5,000 deficiency. The broker makes a margin call, requiring the investor to deposit at least $5,000 in cash to meet the maintenance margin. If the investor does not deposit $5,000 in a timely manner, his broker can liquidate securities for the value sufficient to bring his account in compliance with maintenance margin rules.

  1. Minimum Margin

    Minimum margin is the initial amount required to be deposited ...
  2. Margin Account

    A brokerage account in which the broker lends the customer cash ...
  3. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  4. Margin Debt

    Margin debt is debt a brokerage customer takes on by trading ...
  5. House Maintenance Requirement

    The minimum amount of equity that an account holder must maintain ...
  6. Excess Margin Deposit

    Funds deposited in a trading account beyond what is required ...
Related Articles
  1. Investing

    Leveraged Investment Showdown

    Margin loans, futures and ETF options can all mean better returns, but which one should you pick?
  2. Trading

    Introduction to Margin Accounts

    Find out what your broker is doing with your securities when you invest on margin.
  3. Managing Wealth

    What’s a Good Profit Margin for a New Business?

    Surprisingly, the younger your company is, the better its numbers may look.
  4. Investing

    Spreading The Word About Portfolio Margin

    An underused opportunity provided in an SEC rule can enhance returns and lower risk for spread traders.
  5. Investing

    Finding Your Margin Investment Sweet Spot

    Borrowing to increase profits isn't for the faint of heart, but margin trading can mean big returns.
  1. Do you have to sell your stocks when you get a margin call?

    Understand the implications of a margin call and what an investor's options are when the stock he purchased on margin falls ... Read Answer >>
  2. How much can I borrow with a margin account?

    Understand the basics of margin accounts and buying on margin, including what amount investors can typically borrow for purchases ... Read Answer >>
  3. What are my options when I get a margin call?

    Understand what a margin call means and the two primary options for meeting a margin call, such as depositing additional ... Read Answer >>
  4. Why is purchasing stocks on margin considered more risky than traditional investing?

    Learn why purchasing stocks on margin is riskier than traditional investing, although it can be more profitable when it is ... Read Answer >>
  5. What Happens If I Cannot Pay a Margin Call?

    If an investor is unable to meet minimum margin, the broker may liquidate their securities. Read Answer >>
  6. How is buying on margin regulated by the Securities and Exchange Commission (SEC)?

    Learn how FINRA and the Federal Reserve regulate margin account trading, and understand how pattern day trading can impact ... Read Answer >>
Hot Definitions
  1. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  2. Entrepreneur

    An Entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture. ...
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  6. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
Trading Center