Updated on March 8, 2023
A Margin call refers to the demand made by the broker to a client for depositing money or securities into the margin account.
Margin call can be made when a purchase is made in excess of the value of the margin account or when the value of a client account decreases because the value of the securities held decreases, either due to price fluctuation in markets or because new purchases have been made.
Margin Call Explained
A broker extends a loan or credit to clients against a margin or collateral, which can be cash or securities. An investor’s margin account will have financial assets bought with his/her own funds as well as those availed from the broker through margin.
A margin call occurs when the investor’s equity in a margin account falls below the broker’s required level. This generally happens when the value of securities in a client’s margin account have decreased.