Below is a detailed introduction and example regarding margin calls.

When the equity in your account falls below the maintenance margin (MM) level, the company will issue a margin call notice. You must make up the shortfall within 3 trading days upon receiving the notice (including the date of receipt). The margin call amount will be higher than the difference between the MM and the equity.

Example: margin call case

A client deposits USD 10,000 in cash and USD 5,000 worth of Stock A (initial margin (IM): 30%, MM: 25%), and purchases USD 25,000 worth of Stock B (IM: 50%, MM: 45%). Suppose the market value of Stock B drops to USD 19,500.

After the purchase and the decline in the price of Stock B, the client's holdings are as follows:

The client must ensure that the equity in their account meets the margin requirement by the specified date.

If the client chooses to sell securities, the required amount to be sold is no more than the difference between the IM and the equity, divided by the IM ratio.

If the equity falls below the forced liquidation margin, the shortfall must be made up immediately. Otherwise, the positions may be subject to immediate forced liquidation.

Note: The actual amount of margin call may be higher, depending on the nature of the stocks and the company's policies.

Key takeaways:

• Triggering condition: The value of equity falls below the MM level.
• Margin call amount: The margin call amount is generally higher than the difference between the MM and equity. **
• Processing deadline: You must make up the shortfall or reduce your position within 3 trading days upon receiving the notice.

Disclosures

This article is for reference only and does not constitute any investment advice.