Because using margin increases your financial risk, it is extremely important to remain aware of the current status of a margin account in order to help control that risk. Please understand the below facts:
You can lose more than you initially invest.
If the securities you hold in a margin account decline in value, you may have to deposit additional funds to maintain the necessary equity. This means that a dramatic change in price could wipe out your entire investment. And you would still be required to repay the full amount of your loan, plus all accrued interest.
Your firm can force you to liquidate positions.
Your brokerage firm has the right to force you to liquidate positions in your margin account if the equity in your account declines below the minimum equity required.
Your firm can liquidate positions without notifying you first.
The law does not require brokerage firms to first notify an investor about a requirement to deposit additional funds or equity. Frequently, investors think they’ll be entitled to a certain amount of time to meet a call, but that isn’t true. In practice, most brokerage firms will provide a standard time period to meet a call, but it can be changed at the firm's discretion. A firm can decide to liquidate at any time.
If securities are liquidated, you won’t always have control over which ones you lose.
You may not have the choice of which securities are liquidated from your margin account. This is because a firm may liquidate securities in a margin account at any time, and without prior notice.
Maintenance requirements can be changed without notice.
Regulators define margin maintenance requirements for securities, a brokerage firm can hold specific securities or groups of securities to stricter requirements in some cases, and for various reasons, at their own discretion. And the firm has the right to change these requirements any time, without notifying you first. These kinds of changes can result in an immediate margin call in your account.
Your firm doesn’t have to allow added time for you to meet a margin call.
Overnight delivery or wiring funds are often the only ways to meet a margin call (short of liquidating positions).