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What is a margin call and when can it happen?
What is a margin call?
The purpose of a margin call is to ensure you have enough collateral to comfortably cover the balance of your Portfolio Line of Credit. If the collateral for your Portfolio Line of Credit falls below a certain level based on the amount you have borrowed, then the account is issued a margin call.
If you enter a margin call, you must repay some of your balance. To do this, you can:
- Deposit funds into the Wealthfront account associated with your Portfolio Line of Credit.
- Sell investments from the Wealthfront account associated with your Portfolio Line of Credit, and use the proceeds to repay some of your balance.
When can it happen?
A margin call occurs when the equity in the investment account associated with the Portfolio Line of Credit drops below a certain level.
Example:
| Collateral | Portfolio Line of Credit Balance | Equity % |
| $100,000 | $20,000 | 80% |
| $50,000 | $20,000 | 60% |
| $28,571 | $20,000 | 30% |
A margin call occurs when your Equity % falls below a certain threshold. Below are the types of margin calls you can experience, and how you can resolve them if they occur.
|
Margin call type |
Trigger |
How to resolve the margin call |
|
House Margin Call |
Equity % <= 30% |
Repay some of your outstanding balance.
Time allowed: 2 business days, including the day the margin call begins. If you do not repay the balance in your Portfolio Line of Credit within the time allowed, Wealthfront will sell investments in the investment account tied to the Portfolio Line of Credit, and use the proceeds to repay the balance. |
|
Federal Margin Call |
Equity % <= 25% |
Repay some of your outstanding balance.
Time allowed: 2 business days, including the day the margin call begins. If you do not repay the balance in your Portfolio Line of Credit within the time allowed, Wealthfront will sell investments in the investment account tied to the Portfolio Line of Credit, and use the proceeds to repay the balance. |
It's important to remember that the value of the securities in your account can and will change every day as the market fluctuates, and clients with less margin (or equity) are urged to keep a close eye on their account to avoid a margin call.
Portfolio Line of Credit is a margin lending product offered only to clients of Wealthfront Advisers LLC by Wealthfront Brokerage LLC. You can learn more about Wealthfront Brokerage Corporation on FINRA's BrokerCheck.
Wealthfront prepared this article for informational purposes and not as an offer, recommendation, or solicitation to buy or sell any security. Wealthfront and its affiliates may rely on information from various sources we believe to be reliable (including clients and other third parties), but cannot guarantee its accuracy or completeness. See our Full Disclosure for more important information.
Wealthfront and its affiliates do not provide tax advice and investors are encouraged to consult with their personal tax advisor. Financial advisory and planning services are only provided to investors who become clients by way of a written agreement. All investing involves risk, including the possible loss of money you invest. Margin lending can add to these risks, and investors should carefully review those risks as part of their overall financial strategy. Diversification strategies do not guarantee a profit or protect against loss in declining markets. Past performance does not guarantee future performance. Learn more about Portfolio Line of Credit in the Margin Handbook.
Financial advisory, planning, and investment management services are offered by Wealthfront Advisers LLC (“Wealthfront”), an SEC registered investment adviser. Brokerage products and services offered by Wealthfront Brokerage LLC, member FINRA / SIPC, and a wholly-owned subsidiary of Wealthfront Corporation.
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