What Causes Margin Calls?
A margin call occurs if the value of your margin account falls below the brokerage firm's maintenance margin requirement. This usually occurs when the value of the securities in your margin account decreases. In rare cases, it may happen if your broker changes the maintenance margin requirement to a higher amount.
What Happens During a Margin Call?
If your account is under the maintenance requirements of a brokerage firm, the company will make a margin call and ask you to add money or securities to your margin account. If you cannot meet the margin call, your broker will sell your securities until your account meets the maintenance margin again.
The broker may not always issue margin calls or notify you that your account is under required maintenance requirements. In some cases, they may choose to sell your securities to return you to the maintenance margin without giving you any notice. Make sure you read your company's margin agreement carefully so you understand its terms and conditions and how to handle margin calls. Remember, Assets that are liquidated during a margin call are generally sold at a loss.