In many markets, traders can buy securities by borrowing some of the purchase price. The amount of purchase that is financed by borrowing is called the margin loan. Such an arrangement is called a margin purchase, where the amount that is borrowed is financed by the broker. The amount which is financed by the trader himself can be termed as his equity position. This amount must meet the initial margin requirement, which may be set by the government, exchange, clearinghouse, or broker.
To protect themselves from a sharp drop in asset value, brokers usually enforce a maintenance margin requirement on the trader. If the percentage of equity in a margin account falls below the maintenance margin requirement, the investor will receive a margin call, a request to bring the equity percentage in the account back up to the maintenance margin percentage.« Back to Index