Glossary

A margin call occurs when the value of an investor's margin account falls below the broker's required maintenance margin. 📉

It is a demand by the broker for the investor to either deposit additional funds or sell some of their securities to bring the account back to the required level. This helps ensure that the investor's borrowed funds are still adequately secured by the value of their investments.

For example, if an investor has a margin account with a total value of $20,000, and the broker's maintenance margin is 30%, the investor must maintain at least $6,000 in equity. If the account's value falls to $18,000 due to market fluctuations, the investor's equity would be $5,400, triggering a margin call.

Fun fact: In the 1920s, margin requirements were as low as 10%, 💸 which contributed to the speculative bubble that ultimately led to the stock market crash of 1929 and the Great Depression. This prompted regulators to introduce stricter margin requirements to prevent such crises in the future.