When Does Margin Call Occur?
Margin Call is triggered when there is a maintenance margin deficit, i.e. when Equity Balance < Maintenance Margin Requirement. The client is required to satisfy the margin call within 3 market days, including the date of the notice.
The issued margin call will be slightly higher than the difference between the maintenance margin and equity balance to serve as a buffer for price volatility.
Example for margin call:
A client deposits $10,000 in cash & $5,000 of A shares (IM: 30%, MM: 25%) and purchases $25,000 of B shares (IM: 50%, MM:45%). Suppose the market value of stock B falls to $19,500.
After the client buys the stock and the market value of stock B falls, the client's position is as follows.
| Debit Balance | SGD 15,000 (SGD 10,000 - SGD 25,000) |
| Total Market Value of Investment Portfolio | SGD 24,500 (SGD 5,000 + SGD 19,500) |
| Equity Balance | SGD 9,500 |
| Initial Margin | SGD 11,250 (SGD 5,000 X 30% + SGD 19,500 X 50%) |
| Maintenance Margin | SGD 10,025 (SGD 5,000 X 25% + SGD 19,500 X 45%) |
| Margin Call | SGD 1,015 (The difference between maintenance margin and equity balance is SGD 525) |
The client needs to ensure that the equity balance in their account satisfies the margin requirement on or prior to the specified date.
If the client chooses to sell securities, the market value to be sold is at least equal to margin call amount divided by initial margin ratio (IM Ratio)
When the equity balance is lower than the force-selling margin, the client needs to immediately top up the margin deficit amount or sell down the positions, otherwise, force liquidation might be enforced.
Note: Please contact our customer service if you need any clarification or assistance on the mechanics of margin trading.