Margin Call 2020-04-07 08:00:00

Margin Call

In a margin account, a margin call can occur when the value of the account drops to a certain level, triggering a margin call. Some traders/investors borrow funds from a broker for investments. The broker loans the funds at a certain interest rate. Borrowing money on margin is called using leverage. Using leverage is a double-edged sword — while it can boost an investor’s returns and can also multiply their losses.

As an example, a trader has $10k in cash and borrows $10k from his broker to take a position in XYZ that is worth $20k. The trader is using 50% margin. XYZ’s stock price proceeds to immediately fall, leaving the trader with an account value of only $12k. The trader has $2k in equity and a $10k loan. However, his broker has a minimum margin requirement of 25%. 25% x $12k = $3k, which means, the trader should have $3k in equity for the position but only has $2k. The trader will receive a $1k margin call to bring his equity back up to 25%.


Download The Guidebook To IPWM

Another Way To Own Investment Properties

Learn More About How Investment Property Wealth Management works.

Another Way To Own Investment Properties

Download The Guidebook To IPWM Investment Property Wealth Management®
Download eBook