Margin Call

A margin call is a broker’s demand that an investor who has borrowed money to buy securities deposit additional funds or marginable securities when the account’s equity falls below the broker’s required maintenance level. If the investor doesn’t meet the call, the broker can sell holdings—often without prior notice—to cover the deficiency.

Key takeaways

• A margin call occurs when equity in a margin account drops below the broker’s maintenance requirement.
• Typical responses include depositing cash, adding marginable securities, or selling holdings; brokers may liquidate positions if the call isn’t met.
• FINRA and the NYSE set a minimum maintenance margin of 25%, but brokers often require higher levels at their discretion.
• Margin amplifies gains and losses; trading on margin can result in losses greater than the initial investment.
• Preventive measures—diversification, monitoring, cash cushions, and stop orders—can reduce the likelihood of margin calls.

How margin works and what triggers a margin call

Buying on margin means using borrowed funds from a broker plus your own capital to purchase securities. Your account equity equals the market value of the securities minus the loan balance.

A margin call is triggered when that equity, expressed as a percentage of total market value, falls below the broker’s maintenance margin requirement. This can happen when:
* The market value of securities declines (price drops).
* Volatility increases, causing rapid reductions in account value.
* Concentrated positions fall sharply.

Regulators (FINRA and the NYSE) require at least a 25% maintenance level, but brokers can impose higher requirements (commonly 30%–50% or more).

Note: The maintenance margin requirement is based on current market value, so the dollar shortfall can fluctuate even if the original purchase price and loan amount are fixed.

Typical margin call timeline and broker rights

Brokers commonly give investors a short window (often two to five days) to meet a margin call, but margin agreements typically allow brokers to liquidate assets immediately and without notice. If you fail to meet the call, the broker can sell securities in your account to restore required equity and you remain responsible for any resulting losses or commissions.

How to meet a margin call

Options to address a margin deficiency:
* Deposit cash into the margin account.
* Transfer fully paid, marginable securities into the account.
* Sell other holdings to raise cash.
* Use a combination of the above.

Example (illustrative): If a broker requires a 30% equity level and you need $200 of additional equity, you could either deposit $200 cash or deposit roughly $285 in marginable securities (calculated as 200 ÷ (1 − 0.30) = 285) to cover the shortfall.

Strategies to prevent margin calls

• Consider whether you need a margin account—long-term investors often don’t.
• Keep a cash cushion or readily transferable marginable securities in your account.
• Diversify holdings to reduce the impact of a single position’s decline.
• Monitor positions and margin ratios regularly (daily during volatile markets).
• Set custom alerts at a comfortable buffer above the maintenance requirement.
• Use protective orders (stop-loss) to limit downside risk.
• Keep leverage at manageable levels.

Risks of trading on margin

Trading on margin increases both potential returns and potential losses. Because you’re using borrowed funds, losses can exceed your invested capital. During broad market declines, forced selling to meet margin calls can exacerbate losses and contribute to increased market volatility as more accounts are liquidated.

Frequently asked questions

Q: How quickly must I satisfy a margin call?
A: While brokers may allow a short period (commonly 2–5 days), they generally reserve the right to liquidate immediately if you don’t or can’t meet the call.

Q: What happens if I can’t meet a margin call?
A: The broker may sell some or all of your securities to bring the account back into compliance. You’re liable for any remaining deficiency.

Q: How can I manage margin risk?
A: Use stop-loss orders, limit leverage, diversify, maintain cash or marginable securities, and monitor margin ratios closely.

Q: Does high margin debt affect markets?
A: Yes—high aggregate margin debt can amplify market volatility because margin calls force selling, which can depress prices further and trigger additional calls.

Bottom line

Margin can magnify returns but also magnifies losses and introduces the risk of forced liquidation. Understand your broker’s maintenance requirements, keep a margin buffer, monitor your account frequently, and use risk controls to reduce the chance of a costly margin call.

Sources: U.S. Securities and Exchange Commission; Financial Industry Regulatory Authority (FINRA).