MARGIN CALL Meaning and
Definition
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Margin call is a term used in financial markets, especially in the context of margin trading and derivatives trading. It refers to a demand or call made by a broker or exchange to an investor, requiring them to deposit additional funds or securities into their account to meet the required margin requirements.
When an investor engages in margin trading, they are essentially borrowing funds to finance their investments, using their existing portfolio or securities as collateral. The margin call is triggered when the value of the investor's account falls below a certain threshold, known as the maintenance margin level, as specified by the broker or exchange. This decline in value may be due to the drop in the price of the securities being held or other losses incurred.
The margin call is typically made to ensure that the investor has sufficient funds in their account to cover potential losses and fulfill their obligations. If the investor fails to meet the margin call, the broker may liquidate some or all of the investor's positions to recover the outstanding debts. This is done to reduce the risk exposure of the broker and prevent the investor from defaulting on their loans.
Margin calls serve as a risk management tool for brokers and exchanges, ensuring that investors maintain an adequate level of equity in their accounts. It is essential for investors engaged in margin trading to closely monitor their account value and margin levels to avoid facing a margin call and potential forced liquidation of their positions.
Common Misspellings for MARGIN CALL
- nargin call
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- jargin call
- mzrgin call
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- marfin call
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- martin call
Etymology of MARGIN CALL
The word "margin call" is derived from two separate terms: "margin" and "call".
"Margin" refers to the practice of borrowing money from a broker to purchase financial assets such as stocks, bonds, or derivatives. When individuals or institutions engage in margin trading, they are required to put up a certain percentage, known as margin, while the broker provides the remaining funds. This allows traders to maximize their potential returns by investing with more money than they have on hand.
A "call" in finance generally refers to a demand made by a lender or broker for the borrower to repay an outstanding debt or provide additional funds to cover potential losses. The concept of a "call" is derived from the fact that the lender or broker is figuratively "calling" the borrower to fulfill their obligations.
The term "margin call" emerged to describe a situation where a broker demands that a margin trader deposit additional funds into their account.
Similar spelling words for MARGIN CALL
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