Margin call

Explanation

A margin call (called a maintenance or collateral call for SBLOCs) happens when your equity falls below the required percentage of your collateral. You can meet it in three ways:

1. Deposit cash. Each dollar reduces the loan dollar for dollar.
2. Deposit more marginable securities. This adds collateral.
3. Sell securities and use the proceeds to pay down the loan. Because selling also shrinks your collateral, you need to sell much more than the shortfall: roughly the shortfall divided by the maintenance percentage.

What actually happens in practice:

• Brokers may give you a few days, or none. In fast markets, they can sell your positions without contacting you, and they choose which holdings to sell.
• Forced sales lock in losses at low prices and can realize taxable gains in a taxable account.
• Calls tend to cluster in crashes, exactly when cash is scarce and prices are lowest. A position sold in a call does not participate in the recovery.
• Brokers can raise maintenance requirements during volatility, which can trigger calls even without a further price drop.

The main defenses are a low LTV, a diversified collateral pool, and an emergency source of cash outside the account. In scenarios, the app checks for calls each period. You can choose whether a call is met with outside cash or by forced selling, and see the effect on your long-term outcome.

Example

You hold $1,000,000 of stock and borrow $400,000. Maintenance requirement: 30%.

• Call trigger: $400,000 ÷ 0.70 = $571,429 (a 42.9% drop)

The market falls 45%, and your portfolio is worth $550,000.

• Equity: $550,000 − $400,000 = $150,000 (27.3%)
• Required: 30% × $550,000 = $165,000
• Shortfall: $15,000

Ways to fix it:

• Deposit $15,000 cash: loan becomes $385,000; equity $165,000 = 30% of $550,000.
• Sell securities: $15,000 ÷ 0.30 = $50,000 must be sold. Collateral becomes $500,000, loan $350,000, equity $150,000 = 30%.