Kaleb C. Striplin wrote:
I have heard the term margin call, what does that mean exactly?
There is maintenance margin and initial margin.
Initial margin is what you need in your account to enter the trade, usually
1/2 for stock or about 1/20th for futures.
Maintenance margin is the level you can't let your equity drop below, usually
1/3 for stock and about 1/30 for futures.
If the market goes against you and your equity drops below maintenance margin,
then either you add money to the account or sell something in the account. A lot
of investments in gold and silver futures got washed out in the drop from $22 to
$9 in silver and $1000 to $700 in gold.
My margin calls are real-time. If I'm under margin for more than a few minutes,
my broker's computers will just pick something and liquidate it at market.
Other investors might be given 2-3 days to send money or liquidate what they
want to dump.
Chesapeake Energy's CEO got hit with margin calls this fall, sold most of his
shares and pushed the price per share under $10. It has since recovered to
around $14. I've seen other companies loan money to insiders facing margin calls
to avoid forced insider selling.
Mitch.
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