What are the different types of margin calls?
There are several call types associated with investing. The most common are Day Trade Calls, Money Due Calls, Equity Maintenance Calls, and Margin Maintenance Calls.
What is a Day Trade Call?
A day trade call is generated whenever you place opening trades that exceed your account's day trade buying power, and then close those positions on the same day.
What is day trading buying power?
Day Trade Buying Power, or DTBP, is the amount available to the investor to use for day trades. DTBP is based on the regulatory maintenance excess of margin from the previous day’s close. The maintenance margin excess is the amount by which the equity held in the margin account exceeds the required margin balance. Generally, the DTBP is four times, or 4X the regulatory maintenance margin excess.
For example, if your margin account holds shares of margin-eligible security worth $50,000, the margin excess is $25,000 and the DTBP would be $100,000 ($25,000 × 4). If your account holds $30,000 in cash, not held in a cash sweep, the margin excess is $30,000 and the DTBP would be $120,000 ($30,000 x 4).
Margin Account Balance | $50,000 ABC |
Margin Requirements | $25,000 |
Margin Excess | $25,000 |
DTBP | $100,000 |
Why is a call issued and how is it calculated?
If you exceed your DTBP, a margin call is issued. Time and Tick is the method used to help calculate whether or not a day trade margin call should be issued against a margin account. With this method, only open positions are used to calculate a day trade margin call.
Here’s an example: assume your account had a day trade buying power of $50,000. If you traded in the following sequence, you would not incur a day trade margin call:
● Buy $50,000 of AAPL (the open position).
● Sell it for $50,000 (close the position).
● Then, buy $50,000 of AAPL again.
However, if you bought $10,000 of GOOG while the $50,000 AAPL position was open, you would have $60,000 in open positions, which would exceed your buying power. If both of these positions are closed on the same day, this would result in a day trade call being issued.
What happens when I receive a DT Call?
If you exceed your DTBP, it will trigger a day trading margin call. Once you receive a day trade call, you have up to 4 business days (T+3) to meet the call in an unrestricted account by depositing cash or marginable securities into your account. Funds deposited to meet a day trade margin call, or a minimum equity call, must remain in the account for a minimum of deposit day plus two business days.
During the call period the day trading buying power is reduced to 2x minimum maintenance excess. Any additional overspending of day trading buying power will increase the call amount.
If you do have an outstanding day trade margin call, your DTBP will fall with each opening transaction during the day, but you won’t be credited when transactions close. In addition, your account will be restricted to day trading buying power of only 2 times maintenance margin excess.
If you fail to meet the call within this period, your account will be further restricted to closing positions only for 90 days and the total amount for all DT calls must be covered.
Money Due Call
What is a Money Due call?
A Money Due call is a margin call in a cash account.
This call type occurs when an account exceeds its cash account buying power (available to withdraw) for any given day. If a purchase is made without sufficient funds in a cash account, our clearing firm issues a Money Due (MD) Call.
A Money Due call occurs when you exceed your buying power in a cash account. Market orders for volatile securities and/or failing to maintain equity requirements for cash-secured puts are events that can cause MD Calls. Additionally, failed or returned deposits, can also lead to Money Due Calls.
All Money Due calls are due T+3 (Trade date +3 business days). Calls met via liquidation may result in possible liquidation strikes, restrictions, or closures.
Equity Maintenance Call
What is an Equity Maintenance call?
An equity maintenance call is issued if your account is below $25,000 and you are flagged as a pattern day trader. If your account is tagged as a pattern day trader account, you may face both a day trading margin call and an equity maintenance call.
Accounts tagged as pattern day trader accounts are required to have at least $25,000 in marginable securities to continue to day trade.
If your account is tagged as a pattern day trading account and you day trade, you will face both a day trade call based on the size of the day trade and an equity maintenance call in the amount that would bring your account balance above $25,000.