Greater Fool glossary / Trading & Market Structure

margin call

A demand from your brokerage to deposit more money or sell some of your positions because the value of your account has fallen below the minimum requirement. Brokerages issue margin calls to protect themselves from losing money if your account goes negative. Ignoring a margin call can result in forced liquidation of your positions.

In practice

You borrow $5,000 from your broker to buy stocks using margin, and add $5,000 of your own money, purchasing $10,000 in stock. The stock drops 40 percent to $6,000. Your broker requires you to deposit at least $1,000 more cash or sell $1,000 of stock to meet the minimum equity requirement.

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