Monday, May 29, 2006

What Are Margin Calls?

In the last week we have read a lot about Margin Calls in the newspapers. So I thought about sharing information on what are Margin Calls.Margin is a high-risk strategy that can yield a huge profit if executed correctly. The dark side of margin is that you can lose your shirt and any other assets you're wearing.

A broker's demand on an investor using margin to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin. This is sometimes called a "fed call" or "maintenance call".

You would receive a margin call from a broker if one or more of the securities you had bought (with borrowed money) decreased in value past a certain point. You would be forced either to deposit more money in the account or to sell off some of your assets.