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How to Meet a Margin Call

Original post by C. Taylor of Demand Media

A margin call occurs when an investor has insufficient equity in a margin account to meet the maintenance margin. This amount reflects the fraction of a stock's value when borrowing money from a broker to purchase stock. This is called buying on margin. You are required by the Securities and Exchange Commission to maintain at least 25 percent equity in a margin account, but brokers may impose a higher maintenance margin. When you receive a margin call, you will be required to add equity, which may be in the form of cash or stock, to meet the maintenance margin.

Step 1

Call your broker and ask for their required maintenance margin.

Step 2

Calculate the current value of the stock. As an example, if you have 1,000 shares of a stock that is currently trading at $30, its value will be $30,000.

Step 3

Subtract the amount you borrowed from the brokerage to purchase the stock. Also, add any cash you have in the margin account. This calculates your total equity. In the example from the previous step, if you originally borrowed $25,000 and have no cash in your margin account, your equity would be $5,000.

Step 4

Multiply the stocks' current value by the maintenance margin in decimal format. This calculates the minimum requirement of the maintenance margin. Continuing with the example, If your broker only requires a 25 percent maintenance margin, then multiply $30,000 by 0.25 to get a maintenance margin of $7,500.

Step 5

Subtract the amount of equity you currently have in your margin account from this minimum maintenance margin. This will give be the amount required to meet the margin call. In the example, you would be required to deposit at least $2,500 in cash or stocks to meet the margin call.

                   

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About the Author

C. Taylor has been a professional writer since 2009. He has written for online publications and the "Journal of Asian Martial Arts." Taylor specializes in martial arts, traveling, sciences and computer repair. He received a Master of Science in wildlife biology from Clemson University and a Bachelor of Arts in biological sciences from the College of Charleston.

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