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Definition: House Call
House Call also referred to as margin call is a notification provided by the brokerage firm stating that the client’s margin account has fallen below a specified minimum level, called the maintenance margin and demands that the client deposit cash or securities into the margin account so as to bring the account balance back to the maintenance margin level. If the client is unable to meet the margin requirement, the position of the client is liquidated.
The maintenance margin requirement is typically 25% of the current position. Some brokers may require a greater minimum requirement of equity percentage in case of volatile stocks for safeguarding their interests.
Investors who buy securities by borrowing a margin loan from their brokers are said to buy on margin. They are required to provide a minimum amount of equity at the time of purchasing a new margin. This minimum amount is called the initial margin requirement. The stock price resulting in a margin call/house call is given by:
For example, if an investor buys a stock for $100 per share, with an initial margin requirement of 50% and a maintenance margin requirement of 25%, the investor will receive a house call at a price below $66.67.