What Is A Margin In Writing

How to Meet a Margin Call

Your broker can help you meet your margin call.

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Margin calls are a broker's way of saying that your carefully crafted trade did not quite work out as you had planned. How much you need to post to your account depends on your brokerage firm. The Federal Reserve set the initial minimum margin requirement at 50 percent and the maintenance margin at 25 percent, but your broker can require higher percentages as specified in the margin agreement. A margin call means the value of your securities has fallen below your broker's minimum maintenance margin threshold and additional equity must be deposited within your broker's time limit. If you miss the deadline, FINRA regulations mandate that the brokerage firm meet the margin call for you.

How to Meet a Margin Call

Step 1

Contact your broker and ask to speak with someone in the margin department. Find out exactly how much additional equity is needed to meet the margin call.

Step 2

Decide if you want to deposit cash or stock into your account, or if you prefer liquidating securities currently held in your brokerage account.

Step 3

Contact your broker for wiring instructions to make a cash deposit. Go to your bank and send a wire directly to your brokerage firm. After the wire is sent, provide your broker and the margin department with the federal wire reference number to prevent the brokerage firm from taking action against your account. You can also wire funds from one brokerage firm to another, but make sure this can be completed within your broker's time constraint.

Step 4

Decide which stock you want to deposit in your account. Download or print the necessary stock transfer documents from your brokerage firm's website. Keep in mind that the stock certificate must be send by certified mail and that it can take from 10 to 20 days before the stock is deposited into your account. Make sure this meets your brokerage firm's margin call time limit before selecting this option.

Step 5

Sell securities held in your account to meet the additional equity requirement. You can close out the trade that triggered the margin call and use those proceeds to help reduce the total amount of additional cash you need to post. Alternatively, you can liquidate securities to cover the full amount of the margin call.

References

Resources

Tips

There is no rule that says your broker has to notify you if your account falls below the maintenance margin minimum. Margin calls are strictly courtesy calls. To prevent receiving an unpleasant call, always closely monitor your trades. If it looks like your maintenance margin is going to fall below the minimum, provide additional equity beforehand to avoid a margin shortfall.

Warnings

If your account falls below the minimum margin amount, be aware that the brokerage firm can liquidate any securities held in your account to satisfy the margin requirement without your knowledge or consent. The firm can also sell your stock if you fail to provide additional equity within their deadline.

Writer Bio

Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.