Question

What happens if there is a shortfall in margin?

Hint:

Track your portfolio daily and maintain surplus funds to avoid margin calls and penalties.

Answer 1

A margin shortfall occurs when the value of margin available in the trader's account falls below the minimum requirement set by the broker or exchange. This can happen due to market volatility or increased exposure. Consequences of Margin Shortfall:

Margin Call: The broker will notify the client to deposit additional funds or securities to cover the shortfall.
Auto Square-off or Forced Liquidation: If the investor fails to replenish the margin within the stipulated time, the broker may square off (sell) existing positions to limit risk.
Penalties: The investor may incur financial penalties imposed by the exchange or broker.
Maintaining sufficient margin is crucial for uninterrupted trading, especially in volatile markets.