What’s a lower margin account?

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Below-margin accounts are investor accounts that have fallen below the minimum standard of maintenance requirements set by the brokerage firm. When a client account falls below the minimum maintenance requirements, it is not unusual for the broker to issue a margin call to the client. The margin call amount will be at least sufficient to bring the submargin account back to those standards and is often a few percent above this minimum requirement.

When thinking in terms of a margin call that is used to carry over a sub-margin account, it can be helpful to think of the call as a debit that is now owed. By acknowledging the call and paying the call amount to the broker, the amount is credited to the investor’s account and the weakened account is brought into line with the requirements outlined in the agreement between the broker and the investor.

Depending on the details of the working relationship between the broker and the investor, the brokerage may choose to allow a lower margin account to operate for a short period of time. This is especially true if the investor and the broker have a longstanding business relationship. However, it should be understood that this is a courtesy that the broker may choose to extend. Providing a grace period for the investor to bring the submargin account back online without issuing a margin call is not something the broker has an obligation to offer.

During the period that the account is considered to be undermined by the brokerage, the investor is often limited in the types of orders he can execute in relation to the investment activity normally conducted through the brokerage. In general, any limitations are discussed with the client at the time it is recognized that the account with insufficient margins is below the margin requirements. The broker may choose to waive a restriction if the order will allow the client to cover the margin call and bring the trading account back to standard.

Smart Asset.

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