A. A margin call is a demand from your brokerage firm to increase the amount of equity in your account, after the equity you bought on margin decreases in value.
Watch this short video from Fidelity to understand the mechanics of margin call.
From the video above, the investor faces $2,000 margin call. She has 3 ways to meet her margin call:
- Deposit cash: simply deposit $2,000 into her account.
- Deposit marginable securities: deposit fully paid-for shares of stock as additional collateral for her margin loan. To determine how many shares would be necessary to meet a $2,000 margin call, she could divide $2,000 by the loan value of the stock she plans to deposit. The loan value is equal to 100% minus the maintenance requirement for that stock. Assuming the maintenance requirement is 30%, divide $2,000 by 0.70 to arrive at the figure of $2,857. That's the amount of marginable stock she must deposit to cover a $2,000 margin call.
- Sell shares of stock: Similar to the calculation for depositing securities, multiply the value of the stock sold by the maintenance requirement for the shares that remain in the account. Assuming a 30% maintenance requirement, the investor sells $6,670 worth of ABC Pharmaceuticals Company stock to satisfy her $2,000 margin call.