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Written by Sam Pennington on February 17, 2023
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TD Ameritrade Margin Calls Explained

Margin trading is a popular strategy used by investors to amplify their gains in the stock market. However, it comes with significant risk. Investors ought to be aware of the potential for margin calls.

A margin call occurs when an investor's account value falls below the minimum margin requirement set by the broker. In this article, we will take a look at how a margin call is handled with the TD Ameritrade platform.

TD Ameritrade Margin Account

TD Ameritrade requires investors who wish to trade on margin to have a minimum account balance of $2,000 and a margin account. The margin account allows investors to borrow money from TD Ameritrade to purchase securities, with the borrowed money serving as collateral for the loan.

What is a Margin Call?

When an investor's account value falls below the minimum margin requirement, TD Ameritrade will issue a margin call. A margin call is a request for the investor to deposit additional funds into their account to bring it back above the minimum margin requirement. If the investor fails to do so, TD Ameritrade may sell securities in the account to raise the necessary funds.

TD Ameritrade provides several options for investors who receive a margin call. In fact, there are three options investors can take:

  • The first option is to deposit additional funds into the account to meet the margin call. This is the most straightforward option, and it allows investors to maintain their existing positions and potentially avoid selling securities at a loss.
  • The second option is to sell securities in the account to raise the necessary funds. This can be a difficult decision, as selling securities at a loss can be a challenging pill to swallow. However, it may be necessary to meet the margin call and avoid further losses.
  • The third option is to request a margin increase. A margin increase allows the investor to borrow more money from TD Ameritrade to purchase additional securities. This can be a risky option, as it increases the potential for losses in the event of a market downturn. However, it may be a viable option for investors who are confident in their investment strategy and wish to increase their exposure to the market.

TD Ameritrade also provides resources for investors to manage their margin accounts and avoid margin calls. These resources include margin calculators, risk management tools, and educational materials to help investors better understand the risks associated with margin trading.

Final Thoughts

Margin investing is typically recommended for more advanced investors. However, anyone can get started. With that in mind, investors should be aware of the potential for margin calls. Margin calls can be stressful and may require difficult decisions, but by staying informed and managing risk appropriately, investors can work towards achieving their investment goals.

In conclusion, TD Ameritrade handles margin calls in a straightforward and transparent manner. Investors who receive a margin call have several options available to them, including depositing additional funds, selling securities, or requesting a margin increase. TD Ameritrade also provides resources to help investors manage their margin accounts and avoid margin calls. By staying informed and managing risk appropriately, investors can work towards achieving their long-term investment goals.

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Article written by Sam Pennington
Sam is a personal finance writer. While in college, he dedicated his spare time to learning about personal finance, investing, and real estate. Sam currently works as a business analyst for one of the top food manufacturers in the world.

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