What Happens If I Don't Have the Money to Pay My Margin Call in My Brokerage Account?
If your brokerage firm approves your account for margin trading, it means you can borrow money to pay for the purchase of securities such as stocks. If the stock falls in value, the firm may require you to pay more money via a margin call. If you do not have the money, the firm may sell your stock.
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Minimum Margin
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The Financial Industry Regulatory Authority, or FINRA, is a self-regulatory organization that helps oversee margin trading. FINRA requires you to deposit the lesser of $2,000 or 100 percent of the purchase price of your stock when you make your first margin purchase. Individual firms may have higher requirements for what is known as the "minimum margin."
Initial Margin
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Regulation T is a Federal Reserve Board regulation that applies to many aspects of margin trading. One of the most well-known is the Regulation T initial margin requirement. In addition to the minimum margin, when you buy stocks or other securities on margin you must deposit at least 50 percent of the purchase price into your margin account. For example, to buy stock worth $40,000 on margin you must deposit at least $20,000 in your brokerage account.
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Maintenance Margin
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Once you buy a stock on margin, you must keep enough net equity in your account to satisfy both federal and firm regulations. FINRA requires you to keep at least 25 percent equity in your account, which is determined by subtracting the loan value in your account from the value of the securities in your account. For example, if you own stocks worth $16,000 but have a loan balance of $12,000, your net equity is $4,000. As $4,000 is 25 percent of $16,000, you are right at the 25 percent equity limit. Many firms enforce higher maintenance margin requirements than FINRA, however, in which case you must keep a higher net equity value in your account or face a margin call. It is not uncommon for firms to require 30 to 40 percent margin in accounts.
Margin Call & Liquidation
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If you fall below any margin requirements, your firm may require you to deposit additional funds through a margin call. If you do not deposit money in the time frame specified by your firm, usually within the same day, the firm has the right to sell enough of your securities to satisfy both firm and FINRA margin requirements. The firm does not need your permission to sell securities for a margin call and can sell any of the securities you have as collateral for your loan.
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