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Finance Glossary

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Margin Call

Definition:

Not a call you want to get in the middle of the night.

A margin call happens when you've borrowed money from the broker to buy more investments and your stocks and securities are used as collateral. If your securities rise in value, everyone's happy. If they drop, you might suddenly not have enough in your account to cover the money your broker has lent you. In this case, the broker will issue a margin call; i.e., they'll contact you and ask you to put in more money into your account—or else. 

Example

You put $100,000 in a margin account and it gets invested. Your broker lends you $50,000, borrowed against the $100,000 in the account. You now have $150,000 in investments, but $50,000 of that is with borrowed cash.

Then, the market crashes. Your investments are now worth $40,000. You still owe the broker $50,000, and he gets nervous because you owe more than you have.

Margin call time.

Your broker asks you to put in more than $10,000 or he will sell off some of your investments to get back his money.