Business and Personal Finance Dictionary

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z 

• MARGIN CALL
  
  Buying on margin or selling short can be potentially profitable but also potentially risky. To protect themselves, brokers issue a margin call if your margin account falls below the required maintenance level or a specific percentage of its original value. The New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD) set that requirement at 25%, and some brokerage firms make it 30%. You could get a margin call, for example, if the market price of the stock you bought on margin drops significantly. If you get a margin call, you must deposit additional money to meet the call, bringing the balance of the account back up to the margin required. Otherwise, your stock may be sold at a loss, and your broker repaid in full. For example, if you buy 200 shares at $80 a share on margin, their value is $16,000. If the price drops to $20 a share, their value will be $4,000, which is below 30% of the original value. To meet your margin call, you would have to deposit an additional $800 to bring your account value up to $4,800, or 30% of $16,000. You might get a margin call in other situations as well, such as when you sell stock short or when you day trade, if the value of your account drops below the required maintenance. If you purchase a futures contract with a percentage of the value of the contract, and the value of the contract drops, you will also get a margin call to add enough cash or securities to your account to bring it back to the required level.
  
  Back