{"id":12244,"date":"2023-04-13T14:55:54","date_gmt":"2023-04-13T09:25:54","guid":{"rendered":"https:\/\/razorpay.com\/blog\/?p=12244"},"modified":"2023-04-13T14:55:54","modified_gmt":"2023-04-13T09:25:54","slug":"margin-call","status":"publish","type":"post","link":"https:\/\/razorpay.com\/blog\/business-banking\/margin-call\/","title":{"rendered":"Margin Call: What it is and How to Handle it"},"content":{"rendered":"<blockquote class=\"modern-quote\"><p><span style=\"font-weight: 400;\">&#8220;A margin call is like a fire drill. It&#8217;s a drill for what you should have done before you started.&#8221; &#8211; Joel Greenblatt<\/span><\/p><\/blockquote>\n<p><span style=\"font-weight: 400;\">In this blog, we will explain what a margin call is and how it can affect your business.<\/span><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69e744ad937a3\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69e744ad937a3\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/razorpay.com\/blog\/business-banking\/margin-call\/#What_is_a_Margin_Call\" >What is a Margin Call?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/razorpay.com\/blog\/business-banking\/margin-call\/#What_triggers_a_Margin_Call\" >What triggers a Margin Call?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/razorpay.com\/blog\/business-banking\/margin-call\/#How_does_a_Margin_Call_work\" >How does a Margin Call work?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/razorpay.com\/blog\/business-banking\/margin-call\/#Example_of_a_Margin_Call\" >Example of a Margin Call<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/razorpay.com\/blog\/business-banking\/margin-call\/#How_to_Cover_a_Margin_Call\" >How to Cover a Margin Call?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/razorpay.com\/blog\/business-banking\/margin-call\/#How_to_Avoid_a_Margin_Call\" >How to Avoid a Margin Call?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/razorpay.com\/blog\/business-banking\/margin-call\/#Why_are_Margin_Calls_Important_for_Founders\" >Why are Margin Calls Important for Founders?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/razorpay.com\/blog\/business-banking\/margin-call\/#Get_RazorpayX_Current_Account_%E2%80%93_its_built_for_disruptors_like_you\" >Get RazorpayX Current Account &#8211; it\u2019s built for disruptors like you\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/razorpay.com\/blog\/business-banking\/margin-call\/#Frequently_Asked_Questions\" >Frequently Asked Questions<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"What_is_a_Margin_Call\"><\/span><b>What is a Margin Call?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">A margin call occurs when the value of an investor&#8217;s margin account falls below the broker&#8217;s required amount. When this happens, the broker will require the investor to deposit more funds into the margin account to bring it back up to the required amount.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Margin accounts are often used by investors to buy stocks, bonds, and other securities. These accounts allow investors to borrow money from the broker to invest in these securities. However, there are requirements for how much the investor must deposit into the account, to begin with, as well as how much they must maintain in the account to avoid a margin call.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_triggers_a_Margin_Call\"><\/span><b>What triggers a Margin Call?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">A margin call is triggered when the value of an investor&#8217;s margin account falls below the broker&#8217;s required amount. This can happen when the value of the securities in the margin account declines, causing the equity in the account to fall below the required margin level. The margin level is the percentage of the total value of the securities in the account that must be maintained as collateral.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For example, let&#8217;s say an investor has a margin account with a balance of $50,000 and they have purchased $100,000 worth of securities. If the broker requires a minimum margin level of 50%, the investor would need to maintain at least $50,000 in equity in the account to avoid a margin call.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If the value of the securities held in the account falls to $80,000, the investor&#8217;s equity in the account would be $30,000 ($80,000 &#8211; $50,000). This is only 30% of the total value of the securities held in the account, which is below the broker&#8217;s required margin level. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">As a result, the investor would receive a margin call and would need to deposit additional funds into the account to bring the margin level back up to the required level or sell some of the securities held in the account.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_does_a_Margin_Call_work\"><\/span><strong>How does a Margin Call work?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Let&#8217;s say that you have a margin account with a balance of $10,000, and you decide to invest in $20,000 worth of stock. This means that you have borrowed $10,000 from the broker to make this investment. The broker may require you to maintain a minimum balance in the account of $8,000, which means that you need to have at least $2,000 of your own money in the account.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If the value of the stock that you invested in begins to decline and the value of your margin account falls below the required minimum balance, you will receive a margin call. This means that you will need to deposit more funds into the account to bring it back up to the required minimum balance.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Example_of_a_Margin_Call\"><\/span><b>Example of a Margin Call<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Let&#8217;s say that an investor has a margin account with a balance of $20,000, and they decide to use that account to purchase $40,000 worth of stocks. The broker requires a minimum margin level of 50%, which means that the investor needs to maintain at least $10,000 of equity in the account.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If the value of the stocks that the investor purchased begins to decline and the value of the margin account falls below the required minimum balance, the investor will receive a margin call. Let&#8217;s say that the value of the stocks falls to $30,000, which means that the investor&#8217;s equity in the account is now $10,000 ($30,000 &#8211; $20,000).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, this is only 33.3% of the total value of the stocks held in the account, which is below the required minimum margin level of 50%. As a result, the broker would issue a margin call, requiring the investor to deposit additional funds into the account to bring the equity back up to the required minimum balance of $10,000. If the investor fails to meet the margin call, the broker may liquidate some or all of the securities in the account to cover the shortfall.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_to_Cover_a_Margin_Call\"><\/span><b>How to Cover a Margin Call?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">If you receive a margin call, you will need to cover the shortfall in your margin account by either depositing additional funds or selling securities held in the account. Here are some options for covering a margin call:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Deposit additional funds:<\/strong> You can deposit additional funds into your margin account to bring the equity back up to the required minimum level. This will allow you to maintain your current securities holdings and avoid having to sell them to cover the margin call.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Sell securities:<\/strong> You can sell some or all of the securities held in your margin account to raise the necessary funds to cover the margin call. This may be necessary if you do not have sufficient cash available to deposit into your margin account.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Reduce your margin exposure:<\/strong> You can reduce your margin exposure by selling some of your securities or refraining from purchasing additional securities on margin. This will lower your required minimum margin level, reducing the likelihood of future margin calls.<\/span><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">It&#8217;s important to note that if you do not meet a margin call, the broker may liquidate some or all of the securities in your account to cover the shortfall. This can result in significant losses and should be avoided if possible. It&#8217;s always a good idea to monitor your margin account regularly and to have a plan in place for covering potential margin calls.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_to_Avoid_a_Margin_Call\"><\/span><b>How to Avoid a Margin Call?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Here are some tips to help you avoid a margin call:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Monitor your margin account:<\/strong> It&#8217;s important to keep a close eye on your margin account and monitor the value of your securities holdings regularly. This will allow you to anticipate potential margin calls and take steps to avoid them.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Maintain a healthy margin level:<\/strong> To avoid a margin call, it&#8217;s important to maintain a healthy margin level. This means keeping your equity in the account above the minimum required margin level set by your broker. A margin level of 50% or higher is generally considered a healthy margin level.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Be cautious with margin trading:<\/strong> Trading on margin can be risky, so it&#8217;s important to be cautious and not take on more margin debt than you can afford. Don&#8217;t use margin to purchase highly speculative stocks or to engage in short-term trading strategies.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Diversify your portfolio:<\/strong> Diversifying your portfolio can help to reduce your overall risk and minimize the potential for losses. This can help to reduce the likelihood of a margin call.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Have a contingency plan:<\/strong> It&#8217;s always a good idea to have a contingency plan in place in case you do receive a margin call. This could involve having cash reserves set aside to cover potential margin calls or having a strategy for selling securities in the event of a margin call.<\/span><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">By following these tips, you can help to minimize the risk of receiving a margin call and protect your margin account from losses.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Why_are_Margin_Calls_Important_for_Founders\"><\/span><b>Why are Margin Calls Important for Founders?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Margin calls are important for founders to understand because they can have a significant impact on your business&#8217;s financial health. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u27a1\ufe0fIf your business has investments in the stock market or other securities, you may have a margin account that is subject to margin calls.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u27a1\ufe0fIf your business receives a margin call, you will need to deposit additional funds into the account to avoid the broker liquidating your investments. This can be a significant expense for your business and can impact your cash flow.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u27a1\ufe0fAdditionally, margin calls can be a sign that your investments are not performing as well as you had hoped. This can be a signal to re-evaluate your investment strategy and make adjustments as necessary.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u27a1\ufe0fIn summary, a margin call occurs when the value of an investor&#8217;s margin account falls below the broker&#8217;s required amount. As a founder, it is important to understand how margin calls work and how they can impact your business&#8217;s financial health. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u27a1\ufe0fBy being aware of margin calls and staying on top of your investments, you can help ensure the long-term success of your business.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Get_RazorpayX_Current_Account_%E2%80%93_its_built_for_disruptors_like_you\"><\/span><b>Get RazorpayX Current Account &#8211; it\u2019s built for disruptors like you\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">We know managing a startup can be hard. That\u2019s why we created a current account that is tailor-made for startups like yours. With RazorpayX Current Account, you get:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Easy credit: Guaranteed collateral free Credit Cards<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Powerful automation: Taxes, Vendor Payments, Payroll and more.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Smart Dashboard: Manage inflows and outflows seamlessly<\/span><\/li>\n<li aria-level=\"1\">Forex Services and more<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Integrated access: Access via desktop, mobile or your smartwatch.<\/span><\/li>\n<\/ul>\n<div style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/razorpay.com\/x\/current-accounts\/?r=blog_cta_margin_call\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Sign up for RazorpayX Current Account<\/a><\/div>\n<div><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions\"><\/span>Frequently Asked Questions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div id=\"rank-math-rich-snippet-wrapper\"><div id=\"rank-math-faq\" class=\"rank-math-block\">\n<div class=\"rank-math-list \">\n<div id=\"faq-1\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">What is a margin call?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>A margin call is a broker's demand for an investor to deposit additional funds or securities into their margin account to meet the minimum margin requirements.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-2\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">Why do margin calls occur?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Margin calls occur when the value of the securities held in a margin account falls below the minimum required margin level set by the broker.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-3\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">What happens if I don't meet a margin call?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>If you don't meet a margin call, the broker may liquidate some or all of the securities in your account to cover the shortfall. This can result in significant losses.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-4\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">How can I avoid a margin call?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>You can avoid a margin call by maintaining a healthy margin level, being cautious with margin trading, diversifying your portfolio, and having a contingency plan in place.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-5\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">How do I cover a margin call?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>You can cover a margin call by depositing additional funds into your margin account, selling securities held in the account, or reducing your margin exposure.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-6\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">Can a margin call lead to a forced sale?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Yes, if you don't meet a margin call, the broker may liquidate some or all of the securities in your account to cover the shortfall.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-7\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">How often should I check my margin account?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>It's a good idea to check your margin account regularly, at least once a week, to monitor the value of your securities holdings and ensure that you are maintaining a healthy margin level.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-8\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">What happens if my account falls below the required minimum margin level?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>If your account falls below the required minimum margin level, you will receive a margin call requiring you to deposit additional funds or sell securities to bring the equity back up to the required level.<\/p>\n\n<\/div>\n<\/div>\n<\/div>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;A margin call is like a fire drill. It&#8217;s a drill for what you should have done before you started.&#8221; &#8211; Joel Greenblatt In this blog, we will explain what a margin call is and how it can affect your business. What is a Margin Call? A margin call occurs when the value of an<\/p>\n","protected":false},"author":102,"featured_media":12280,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[27],"tags":[],"class_list":{"0":"post-12244","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business-banking"},"_links":{"self":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts\/12244","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/users\/102"}],"replies":[{"embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/comments?post=12244"}],"version-history":[{"count":0,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts\/12244\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/media\/12280"}],"wp:attachment":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/media?parent=12244"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/categories?post=12244"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/tags?post=12244"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}