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Charles A. Jaffe

Margin Call

 

Buying on Margin

Costs of Buying Stocks on Margin

Margin Call

The Pros and Cons

Psychology: Is it worth?

 

 

Margin call is a fabulous term which carries some mysticism. However, there is nothing mystical and nothing romantic about the margin call. Yes it creates a lot of feeling for the person you receives a margin call, but those feelings are really not pleasant ones. 

 

Margin call normally is provided by the financial intermediate company for the user of margin trading or repo service. Such call can be expected when investment markets are decreasing and collateral securities are losing value. When value of collaterals reaches the critical margin, which is determined in contract or in rules, service provider makes a call to investor, and says that investor must bring more funds in to the trading account or sell some securities. 

 

It is kind of problematic situation for an investor, because usually he doesn’t have free funds to add (if he would have then it would not make any reason to buy on margin and pay interests for borrowed capital). That means investor is forced to sell some stocks or other securities from the investment portfolio when stock market is at the bottom.  

 

During stock market crash prices of stocks are falling rapidly and until investor will take decisions which stocks to sell and until he will succeed it, the stock prices may decrease even more. If investor will not sell any stocks in time, brokerage firm will do that to cover possible losses. 

 

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