• Business
  • Crypto
  • Investing
  • Lifestyle
  • Money
  • Glossary
    • A
    • B
    • C
    • D
    • E
Search
Finance Reference
Quotes by TradingView
  • Business
    • Access to Advanced Link-Building Techniques
      Ways to Improve Driver Satisfaction at Your Trucking Business
      How Thought Industries LMS is Revolutionizing Online Learning and Development for Organizations
      The Benefits of ERP Software in the Construction Industry
      Learn How Web Optimization Can Catapult Your Business With This Easy Guide
  • Crypto
    • Solana: All You Need to Know
      Unveil the Hidden Delights of Internet Betting for Unforgettable Wins
      Bitcoin’s Role in the Financial System of Germany
      Bitcoin and blockchain: Exploring the potential for new use cases and applications
      Understanding the blockchain: How it powers Bitcoin
  • Investing
    • How effective is Elliott wave theory?
      The Impact of Cryptocurrency Investment on Inflation – A Comparative Analysis
      How can you explain interest rate predictions?
      Errol Damelin’s Financial Golden Guidelines To Boost Investment Success Rates
      Forex Trading: What You Need to Know
  • Lifestyle
    • 4 Questions to Plan for Retirement Together
      Tips On How To Earn Some Money When Gambling Online
      Don’t Risk Your Belongings: Discover Why You Need a Residence Evacuation Pro
      Safeguarding Your Finances: Tips for Spotting and Avoiding Online Gambling Scams
      Delta-8 THC: What It Is and How It Differs from Delta-9 THC
  • Money
    • Make Money Online: 7 Real and Easy Ways
      Exploring the Basics of Stablecoins
      A Comprehensive Guide to Instant Cash Advance Apps: How They Work and What to Look For
      What is Astropay And How Does It Work?
      Building a Strong Credit Score: Your Roadmap to Financial Success
  • Glossary
    • Fix vs Trunk Club
      Comparing Stitch Fix vs Trunk Club: Which Subscription Box is Best for You?
      Relationship Between the Stock Market and the Economy
      Understanding the Relationship Between the Stock Market and the Economy
      What to Do with Your Bonus Money
      What to Do with Your Bonus Money
      How Much Money Do I Need to Quit My Job?
      How Much Money Do I Need to Quit My Job?
      How to Invest in Yourself as a Woman
      How to Invest in Yourself as a Woman
      AllABCDE
  • Glossary
  • M

Margin Call

By
rjonesx
-

Definition

Margin Call is a 2011 American drama film written and directed by J. C. Chandor. The principal story takes place over a 24-hour period at a large Wall Street investment bank during the initial stages of the financial crisis of 2007–08. In focus are the actions taken by a group of employees during the subsequent financial collapse. The ensemble cast features Kevin Spacey, Paul Bettany, Jeremy Irons, Zachary Quinto, Penn Badgley, Simon Baker, Demi Moore, and Stanley Tucci.


Margin Call

A margin call is essentially a broker’s tool where he or she can demand an investor to deposit additional money on invested securities so that a minimum maintenance level of a margin account is accommodated for by the investor.

Margin Calls are usually made by brokers who run margin accounts. These are fundamentally brokerage accounts in which the broker lends cash to a customer so they are able to buy securities from the stock market. The collaterals for the account are the securities value and the cash invested itself.

In a margin account, it is important to know that if the value of the stock drops considerably, then the account holder receives a margin call from the broker to deposit more cash, or sell the portion of the stock in their possession.

On the other hand, a maintenance margin is the bare minimum value of ownership that an investor must maintain in a margin account. Maintenance margins for most securities or stocks in trade are often kept at 25% by brokers. However many brokers can have even higher maintenance margins that can be around 30 to 40%.

Working Formula:

Margin Call is made when:

(Market Value of Invested Securities – Broker’s Invested Cash) ÷ (Market Value of Invested Securities) % << Maintenance Margin % specified by the broker.

Example:

Jordan wants to invest in a security that has a market value of $50,000. He asks a broker to open a margin account in which his equity or ownership is 50% i.e. $25,000. However the next day the value of the invested security falls down to $30,000. This would result in the broker’s share of the security to become a major portion of the invested capital and the investor’s share falls down to $5,000. Since the bare minimum of 25% margin requirement has been breached, the broker will make a margin call to the investor to deposit more cash to the account or sell off some of the invested security in order to meet the maintenance margin obligation.

On the other hand if we consider the same scenario, but instead of stock price falling, it increases to $70,000 then the situation would not require a margin call from the broker. This is because when the security or stock value is raised, then the invested share of the investor is also raised, leaving the broker much more safe than before.

Further Reading

  • 'Margin Call': using film to explore behavioural aspects of the financial crisis – link.springer.com [PDF]
  • Share pledges and margin call pressure – www.sciencedirect.com [PDF]
  • Giving Form to Finance Culture: Neoliberal Denizens in – www.jstor.org [PDF]
  • Option strategies: Good deals and margin calls – www.sciencedirect.com [PDF]
  • Demystifying Dimensions of Ethical Behaviour: through the Lens of South Park" Margaritaville"," The Big Short" and" Margin Call" – search.proquest.com [PDF]
  • Margin trading bans in experimental asset markets – www.econstor.eu [PDF]
  • Leverage causes fat tails and clustered volatility – www.tandfonline.com [PDF]
Previous articleManager Of Managers (MOM)
Next articleOne-Cancels-the-Other Order (OCO)
rjonesx

RELATED ARTICLESMORE FROM AUTHOR

Fix vs Trunk Club

Comparing Stitch Fix vs Trunk Club: Which Subscription Box is Best for You?

Relationship Between the Stock Market and the Economy

Understanding the Relationship Between the Stock Market and the Economy

What to Do with Your Bonus Money

What to Do with Your Bonus Money

EDITOR PICKS

Joint Supply

Quarter (Q1, Q2, Q3, Q4)

Obsolete Inventory

Should I invest in additional life coverage?

FAAMG Stocks

Per Stirpes vs Per Capita

Latest

Increase Your Budget With These 7 Simple Suggestions

How can I lower my car payments without refinancing?

Solana: All You Need to Know

Access to Advanced Link-Building Techniques

The Use of Quant (QNT) in Predictive Analytics

The Top PAX Gold Exchanges: Where to Buy and Sell

  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • J
  • K
  • L
  • M
  • N
  • O
  • P
  • Q
  • R
  • S
  • T
  • U
  • V
  • W
  • X
  • Y
  • Z
  • About
  • Accessibility
  • Privacy
  • Sitemap