What is a margin call?

When the assets in your brokerage account fall below the "initial margin requirement" for a stock you purchased, you might get a margin call.                                                         

In general, under Federal Reserve Board Regulation T (commonly referred to as Reg T), firms can initially lend a customer up to 50 percent of the total purchase price of an eligible stock. But in some cases, a firm might restrict you from purchasing or owning certain securities on margin. This can include stocks that do not trade on a national exchange such as the NYSE or NASDAQ and might also include stocks the firm believes to be particularly susceptible to price swings.

If you don't meet the deadline to cover the call, regardless of whether the stock you purchased on margin moves up or down, you will get a margin call requiring you to deposit the 50 percent of the purchase price ($5,000). While a firm may grant an extension, they are not required to do so. If you fail to make your deposit, and the firm does not grant you an extension, the firm is required to liquidate the shares you purchased on margin or can liquidate other assets you put up with the firm as collateral.

Please note: when you open a margin account, FINRA rules require you to deposit a “minimum margin” amount of $2,000 with your brokerage firm, but this may not be enough to cover your initial margin requirement.


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