Cold Calling: If You're Still on Margin, Calls May Come Without Warning

If you're still investing on margin these days, you're probably pretty thick-skinned. And that's good, because when it comes to margin calls, brokers have no duty to be coddling and communicative.

While it's traditional, and certainly nice, for brokers to inform customers when they're in a margin-call situation, they don't have to. If you get a heads-up in time to do something about it, consider it a plus.

A margin call arises when an investor borrows money from the broker to buy stock, putting up the holdings as collateral. If the stock's price drops and the investor's equity in the account -- the market value of stock above what's owed to the broker -- falls below a certain minimum percentage of the stock's market value, the broker has the right to sell shares in the account to reduce its exposure on the loan. No notice needed.

Most TSC readers seem to feel brokers treat them quite fairly when it comes to margin calls. At least, those were the results of our survey on the subject late last summer. ...