A margin call is a demand by a broker or lender for an investor to deposit additional funds or securities into their margin account to bring it up to the required level. This typically occurs when the value of the investor’s account falls below a certain threshold, which is set by the broker or lender.
A margin call is usually triggered when the investor has borrowed funds or used leverage to invest in securities or other assets. If the value of those assets falls below a certain level, the investor’s margin account may no longer meet the minimum requirements set by the broker or lender. In such a case, the broker or lender may issue a margin call to the investor, demanding that they deposit additional funds or securities to restore their margin account to the required level.
If the investor fails to meet the margin call, the broker or lender may take actions such as liquidating the investor’s securities or assets to cover the borrowed funds. This can result in significant losses for the investor.
Margin calls are an important risk management tool for brokers and lenders to protect themselves from potential losses due to the use of leverage by investors. It’s important for investors to be aware of the risks associated with margin trading and to have a solid understanding of their broker or lender’s margin requirements and policies.
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