Bk1 post 8 : What is a margin call?

Margin Call

When you receive a margin call from your broker it means two things has happened.

1) your trade has gone bad (in the red) and

2) your loan is now due.

The value of your investment has dropped and it is going red. Imagine the thing that you used to buy the investments is now due and payable. It also means that you have act fast.

You have just 24 hours to find the money and pay, because if you don’t, they are going to close your trades and that is going to hit you financially.

We know that a margin call is not good for us, but we need a margin loan to get into the trade. Most platforms will give you a margin call when it drops below 70~90%. In our example we will use 90%. This means that you will need to maintain 90% of cash in your account for the margin of your trades in your account. Once the cash value drop below this amount, the broker will give you a margin call.

Value	Margin (leverage of 100:1)	Equity (Account balance)	Margin call (90%)
100,000	1,000	11,000	1100%
90,000	1,000	1000	100%
89,900	1,000	900	90%

At the end of the trading day (timing differs from brokers depending on the country where they operate) if your margin is still not met, your trades will still be sold even if they are at a loss ( and with a possibility that you owe the brokerage money ) .

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