You may wonder how to distinguish between a maintenance call and a margin demand. A margin call occurs when the balance of your margin account falls below the brokerage’s required maintenance level. This may happen because you are shorting a security or the market moves against you. The call requires you to deposit additional capital, either in cash or securities. Your broker may even require you to sell securities in order to meet the required margin.
In both cases, your account must have a certain percentage of equity in order to avoid a margin call. In case of a maintenance call, you must keep at least 40% of the total value of the trade in your margin account. If you fail to do so, the broker will issue a margin call notification. You then have two to five days to replenish the amount of your account by adding additional funds. Alternatively, you may sell assets to move the cash into your account.
In the case of a maintenance call, you are required to deposit additional funds if you fall below your maintenance margin. In such a case, you may be forced to liquidate your holdings or deposit additional capital to make up for the lost money. For example, an investor with a maintenance margin of 40% would have a total value of $1,400 in his ABC stock. On the other hand, a maintenance margin of 50% would require the investor to hold $700 of ABC stock, and vice versa.