Margin calls typically happen when there is a large decline in the value of your equity. When you get a margin call, you’ll have to increase your equity by trading assets held in your account or add funds or securities to your account to meet the minimum margin maintenance requirement. If you fail to get your account’s equity above the margin maintenance requirement*, Passfolio Securities may have to liquidate your position(s) at market value in order to keep your account at the minimum maintenance amount required by your margin call.
There are two types of Margin call:
1. House Maintenance Call (35% of LMV*) - generally 4 business days to pay
2. Exchange (NYSE) Call (25% of LMV) - satisfy immediately ASAP
For example, the long market value of the securities in a margin account declines to $50,000 when the debit balance is $40,000. The equity is $10,000. Since the required equity is $17,500 ($50,000 x 35%), the customer would receive a house maintenance call for $7,500.
*Long market value (LMV) is the current market value of the securities purchased in a margin account. The LMV can, and will likely vary; it can change when your assets increase or decrease in value.
When a customer purchases securities on margin, the margin call (the amount the customer has to come up with) is based on the LMV of the securities.