One bit of risk that is common in investing is the use of a margin account - this is when the brokerage you open an account with gives you a loan to use for investments. Trading on margin gives you more capital to invest with, but it also makes you run the risk of a margin call.
A margin call has the potential to be catastrophic for investors, turning a poor investment choice into a much bigger issue. What is a margin call, what happens if you are unable to pay it and what should you do to avoid it?
What Is a Margin Call?
A margin call is what occurs when an investment incurs enough losses that the investor's margin account goes below a certain amount, known as the maintenance margin. When a margin call happens, the brokerage will demand add funds or securities to the margin account to get back over the maintenance margin.
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