5.17What is a margin call?
1What is it?
A margin call is the broker’s demand for more money (or collateral) when your losses reduce your margin below the required level.
2Why does it exist?
The broker must protect its loan. If your equity shrinks, it asks you to top up.
3Calculation
Your equity = Position value − Loan
- Position ₹1,00,000, loan ₹75,000 → equity ₹25,000 (25%).
- Stock falls 15% → position ₹85,000 → equity ₹10,000 (11.8%).
- If the required margin is 25% of ₹85,000 = ₹21,250, you are short by ₹11,250.
Margin call: add ₹11,250, or the broker sells.
4Quick revision
- Triggered when equity falls below required margin.
- You must add funds or reduce the position.
5Knowledge check
Q1. What triggers a margin call?Show answer
Losses reducing your equity below the required margin.
Q2. What are your options?Show answer
Add money or collateral, or sell to reduce the position.
Q3. Why does the broker care?Show answer
To protect its loan.