A Margin Call is a notification sent by the broker to the trader, that alerts them about the urgency to deposit more money in the trading account or withdraw the account or trade the share at some level to avoid treading too close to the margin.
A margin call generally indicates that the price of one or more of the shares in the margin account has dropped. When a margin call is sent out, the trader must decide whether to invest more capital or trade some of the assets.
The margin level is denoted as a fixed percentage, determined by the broker. This can be easily found in the account specification of the trading contract. It is also called the Maintenance Margin.
When the market is moving against the open positions and the margin level falls to the margin call percentage, a trader would get a margin call warning about that from the broker.
It is a warning about the approaching stop-loss limit for a trader.
Use of this Term in a Sentence
- Margin calls are requests for extra funds or securities in order to bring a margin account up to the required minimum maintenance margin.
- If a trader fails to deposit funds, brokers may force them to sell assets at any price, regardless of the market value, to fulfill the margin call.
- The costs and the figure associated with margin calls are determined by the percentage of margin maintenance and the stocks concerned.