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CandleFocus Glossary Editor
A house call is a demand from a brokerage house that an investor must restore the minimum required deposit in order to offset losses in the value of assets bought on margin. When a buyer on margin borrows from the brokerage house to multiply their gains in an investment, they are then required to take responsibility for the resulting losses. A house call occurs when the value of these investments decreases drastically and the investor is unable to cover their debt to the “house”.
When investors buy or purchase on margin, they are essentially borrowing money to buy stocks, and their brokerage house serves as their lender. An investor might choose to buy on margin in order to make more profitable investments than they could have otherwise made, going beyond their own cash reserves. But it should be noted that buying on margin carries a higher level of risk because of the added leverage of borrowed funds. If a stock’s market value drops and the investor is left owing more than its value, a house call can be made by the brokerage house to recover the loss.
When a house call is made the broker will first demand that the investor restore the potentially lost funds with cash or securities to the margin account up to the required minimum deposit level. The investor may also be asked by the brokerage house to employ more conservative trading strategies, liquidate some of the assets, or even close out the margin account altogether until all debts to the house have been settled.
A house call is an important safeguard for brokerage firms, as it ensures that investors who purchase on margin are held responsible for any losses incurred. If a house call is not met by the investor in a timely fashion, their positions may be liquidated by the brokerage house in order to cover their losses, potentially leading to further losses or financial hardship.
As a result, investors should exercise caution when considering purchasing on margin, and always ensure that they have the financial resources available to cover any losses they might incur, or they will be subject to a house call.
When investors buy or purchase on margin, they are essentially borrowing money to buy stocks, and their brokerage house serves as their lender. An investor might choose to buy on margin in order to make more profitable investments than they could have otherwise made, going beyond their own cash reserves. But it should be noted that buying on margin carries a higher level of risk because of the added leverage of borrowed funds. If a stock’s market value drops and the investor is left owing more than its value, a house call can be made by the brokerage house to recover the loss.
When a house call is made the broker will first demand that the investor restore the potentially lost funds with cash or securities to the margin account up to the required minimum deposit level. The investor may also be asked by the brokerage house to employ more conservative trading strategies, liquidate some of the assets, or even close out the margin account altogether until all debts to the house have been settled.
A house call is an important safeguard for brokerage firms, as it ensures that investors who purchase on margin are held responsible for any losses incurred. If a house call is not met by the investor in a timely fashion, their positions may be liquidated by the brokerage house in order to cover their losses, potentially leading to further losses or financial hardship.
As a result, investors should exercise caution when considering purchasing on margin, and always ensure that they have the financial resources available to cover any losses they might incur, or they will be subject to a house call.