House Call: Meaning and How It Works
A house call is a demand from a brokerage firm that an investor deposit enough cash or margin-eligible securities to cover a shortfall in a margin account. It is a form of margin call triggered when the account’s equity falls below the brokerage’s required maintenance margin, typically after losses on securities bought with borrowed money.
How margin and house calls work
- Buying on margin means borrowing funds from the brokerage to purchase more securities than cash alone would allow. This amplifies both gains and losses.
- When you open a margin account, Regulation T allows borrowing up to 50% of the purchase price of the first stock (brokerages can impose stricter limits).
- After the purchase, FINRA requires that customers maintain at least 25% equity of the current market value of the securities, but individual brokerages may set a higher maintenance requirement. That brokerage requirement is what triggers a house call.
- If the account falls below the required maintenance level, the brokerage issues a house call. The investor must meet the shortfall by depositing cash or margin-eligible securities, or by selling positions.
Broker practices and timing
- Brokerages set their own maintenance requirements and enforcement policies. Some allow a short window to meet a house call; others demand immediate payment.
- Example practices:
- Fidelity: maintenance requirements can range widely (e.g., 30%–100%) and typically gives up to five business days to meet the shortfall, though it may liquidate positions sooner.
- Charles Schwab: maintenance requirements vary by security but are commonly around 30%; house calls may be due immediately.
If you do not meet the house call within the firm’s time frame, the brokerage may liquidate securities in the account without further notice until the account meets the required minimum.
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What to do if you receive a house call
- Deposit cash or margin-eligible securities to restore the required equity.
- Sell margin-eligible securities in the account to reduce the deficit.
- Contact your broker immediately to understand the deadline and possible options.
- Consider reducing leverage or closing losing positions to lower future risk.
Key points
- A house call is a broker’s demand to restore the minimum equity in a margin account.
- Initial margin borrowing can be up to 50% under Regulation T, but brokerages often set stricter limits.
- FINRA sets a baseline maintenance requirement (25%), but brokerages commonly require more.
- Failure to meet a house call can result in immediate liquidation of positions.
Bottom line
House calls are the brokerage’s mechanism for protecting itself and enforcing margin requirements. Using margin increases potential returns but also amplifies the risk of rapid losses and forced liquidations. Monitor margin levels closely and maintain a buffer to avoid unexpected house calls.