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Margin Call

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A margin call is the demand by a brokerage that an investor contribute additional cash to a margin account. The margin call may mandated by Federal Reserve rules, such as Regulation T, although the NASD, the exchange, or even an individual brokerage may have tighter margin requirements that could trigger a margin call sooner. The margin call takes place when securities purchased on margin, decline below a certain amount, so the account no longer meets the maintenance margin. The investor will generally receive a margin call by phone. In the event a margin call cannot be met, the brokerage will sell securities held in account until margin requirement is met. Failure to meet a margin call can therefore result in a considerable loss. The margin requirement to initiate a trade on margin, called the initial margin, is higher than the maintenance margin so that small fluctuations in price do not typically trigger a margin call soon afterwards. A margin call can often be satisfied with marginable securities in lieu of cash.



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