What is a margin call?

Purchase on a margin includes the collection of a partial loan from someone's broker to cover a larger investment than its capital could directly cover. The main call is most common when the amount of the actual capital that the investor has, falls below the specified percentage of the total investment. Starting the margin can also be launched if the broker changes his minimum margin requirement-- the absolute minimum percentage of the total investment that he / she must have in direct capital. Some examples best prove two circumstances in which the margin calls are likely to occur. We will say that we have borrowed $ 50,000 from our broker for a margin to buy shares and invested $ 50,000 from our own capital. After a particularly bad week of performance, the shares in which we originally invested have only $ 75,000. This leaves our own capital to $ 25,000, which can be determined that taking over the current value of $ 75,000 and the loan value of $ 50,000. If there is a requirement for the minimum margin of our makHearing 30%, we will still be fine, because the minimum margin requirement in our case would be 30% of $ 75,000 or $ 22,500.

However, if the value of the shares falls to $ 60,000 again, then our capital will remain at only $ 10,000. At this point, our broker will make a march call and we will be forced to get at least another $ 8,000. We could raise money to meet the margin by issuing part of the shares in which we have invested, by selecting another loan from another source, or by completing our capital fund with our own asset.

The second scenario in which the margin can call, has to do with the mediation itself, rather than with the market performance. Suppose the same situation as before we purchased shares worth $ 100,000 with $ 50,000 in our own capital. The same initial decline occurs and leaves us with a capital of $ 25,000 per investmentor $ 75,000. The same mediation has a minimum margin requirement, so they do not have to make calls on the margin.

Sometimes, due to a nodding market or internal factors, the mediation may decide to slightly adjust its minimum margin requirements. If our brokerage was to increase its requirement for a minimum margin to 35%, the minimum capital would be $ 26,250 in our case, so we should issue a challenge to the margin and be forced to increase another $ 1,220. There is no challenge in the financial world, and this does not reflect the investor to be the subject of one. Talks on the margin are simply part of a margin purchase, and while some people decide to keep their invested capital significantly over the minimum margin requirements to avoid calling a margin, others are constantly investing at a minimum, which every time it takes the market to Trhnturn.