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Margin Call

Posted on February 11, 2011 by Thomas DeGrace

Margin Calls is when the % of equity verses the debt falls below the broker’s min. standards, a margin call is issued to either come up with the money to bring the equity back to 50% or the shares of the portfolio will be sold to bring it up to 50%.  There is usually only a few days to come up with the money. (if you have 1000 dollars and buy 20 shares of CMGI at $100 a share.  Thus borrowing $1000.  If your broker min. requirement  is 30%, then you will get a margin call if CMGI drops to 71 1/4. After your margin call you are either expected to pay $575 or 8 shares of your CMGI will be sold bringing your total value of your portfolio to 425. Using margin can double your profits or double your losses. Be careful and is a good habit to either not use it or borrow 20% or less of your stock’s value)

Understand How Margin Call Works

Margin Buying is also referred as buying Stocks on margin. Interest on borrowing on margin is far lower than any credit card and about as cheap as a home mortgage interest rate. If used properly is can be a great tool. You are allowed to borrow up to 50% of your stock’s current value. You can use that borrowing power to buy more stock or use the cash for something else. So with $1000 worth of cash you can buy $2000 worth of stock borrow $500 worth of cash.