Question

If you ignore a margin call, your broker:

a. will seize all the assets in your account.
b. will close your account.
c. may place a short sale on your behalf to cover the amount of the call.
d. may sell some of your securities to repay the margin loan.
e. will increase both your margin loan and the rate of interest on that loan.

Answer 1

Answer:

The correct answer is letter "D": may sell some of your securities to repay the margin loan.

Explanation:

A Margin Call is issued when the equity in a margin account falls below a certain level. In the U.S. this level is set by the Federal Reserve (Fed) Board "Regulation T". Many brokers have their margin requirements known as "house requirements" usually with maintenance levels of 30 to 40%.

When a margin account falls below the margin limit and the trader ignores this, the broker can sell some of the securities of the trader to cover the margin losses.