# Margin call

Margin call is a broker’s demand that an investor restore a margin account’s equity after it falls below the broker’s required maintenance level.

## What it means

A margin account can fund part of a stock purchase with money borrowed from a broker. The stocks serve as collateral, while the investor remains responsible for the loan. If the account’s equity falls below the broker’s maintenance requirement, the broker may issue a margin call.

Meeting a call may require adding cash or eligible securities, or reducing positions. The broker’s agreement determines the deadline and permitted responses. A broker may also liquidate holdings without waiting for the investor to respond; a margin call should not be treated as a guaranteed warning period. Requirements can vary by broker, security and account, and a broker can raise its own requirements.

## How it is calculated

For a simple account holding one margined stock position, with no other balances or charges:

`Equity (US$) = current stock value (US$) − outstanding margin loan (US$)`

`Equity percentage (%) = equity (US$) ÷ current stock value (US$) × 100`

`Maintenance deficiency (US$) = max[0, required maintenance equity (US$) − equity (US$)]`

`Required maintenance equity (US$) = maintenance margin rate × current stock value (US$)`

The **outstanding margin loan** is the amount owed to the broker; this simplified calculation holds it constant as the stock price changes. The **maintenance margin rate** is the broker’s applicable minimum equity fraction, written as a decimal in the formula—for example, 30% is 0.30. **Current stock value** is the shares’ current market value. The deficiency measures how far equity is below the requirement *at that value*; it is not necessarily the amount of stock that must be sold.

This is an illustration, not a complete broker account calculation. Interest, fees, other positions and different requirements can change the result.

## Worked example

Suppose, hypothetically, an investor buys 100 shares at US$100 each, for US$10,000 total. The investor contributes US$5,000 and borrows US$5,000 from a broker. Assume a 30% maintenance margin rate and ignore interest and fees.

1. At purchase, equity is US$10,000 − US$5,000 = US$5,000, or 50% of the stock’s value.
2. Suppose the shares fall to US$70 each. Their current value is 100 × US$70 = US$7,000. The loan remains US$5,000, so equity is US$2,000.
3. Equity percentage is US$2,000 ÷ US$7,000 × 100 = approximately 28.6%, below 30%.
4. Required maintenance equity is 0.30 × US$7,000 = US$2,100. The deficiency is US$100. If the broker permits a cash deposit and the stock value does not change, adding US$100 would bring equity to US$2,100.

A further price decline could create a larger deficiency. The broker’s actual notice and account rules govern what happens next.

## Why it matters before you trade

Borrowing magnifies changes in account equity: a fall in the stock’s value reduces equity while the loan is still owed. A forced sale can occur at an unfavorable price and may leave a remaining loan balance. Checking the proposed position size, borrowing amount and broker’s maintenance rules helps make that exposure visible before an order is placed. A stop-loss order does not guarantee an exit price or prevent a margin call.

## How PreTrAIde uses it

PreTrAIde does not state that it calculates margin requirements, monitors margin accounts or predicts margin calls. Its **pre-trade analysis** assesses a proposed stock basket before any order is placed, including risk, liquidity, volatility and estimated execution costs. Those checks can provide context for a leveraged position, but they do not replace the broker’s account-specific margin calculation. PreTrAIde’s GO, NO-GO and MODIFY verdicts are decision support, not recommendations; users place trades with their own broker.

## Common mistakes

- **Confusing initial and maintenance margin:** The amount required to open a position can differ from the equity needed to keep it open.
- **Assuming the deficiency is always the cash required:** Broker rules and changing prices affect how a call can be met.
- **Expecting a guaranteed deadline:** A broker may liquidate collateral under its account agreement.
- **Ignoring the loan after a sale:** Liquidation does not necessarily erase every amount owed.

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Source: https://pretraide.com/glossary/margin-call