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What is an Undermargined Account?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 08 December 2016
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    2003-2016
    Conjecture Corporation
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Undermargined accounts are investor accounts that have dropped below the minimum standard of maintenance requirements set by the brokerage house. When a customer account falls to a level that is below the minimum maintenance requirements, is it not unusual for the broker to issue a margin call to the client. The amount of the margin call will be at least enough to bring the undermargined account back up to those standards, and often is a small percentage above that minimum requirement.

When thinking in terms of a margin call that is utilized to bring an undermargined account back up to standards, it may be helpful to think of the call as a debt that is now due. By recognizing the call and paying the amount of the call to the broker, the investor account is credited with the amount and the undermargined account is brought back into line with the requirements outlined in the agreement between the broker and the investor.

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Depending on the particulars of the working relationship between the broker and the investor, the brokerage may choose to allow an undermargined account to function for a short period of time. This is particularly true of the investor and the broker have a long-standing business relationship. However, it should be understood this is a courtesy that the broker may choose to extend. Providing a grace period for the investor to bring the undermargined account back into line without the issue of a margin call is not something that the broker is under any obligation to offer.

During the period that the account is considered to be undermargined by the brokerage, the investor is often limited in they type of orders he or she may execute in regard to the investment activity usually conducted through the broker. Generally, any limitations are discussed with the client at the time the undermargined account is recognized as falling below the margin requirements. The broker may choose to waive a restriction if the order will allow the client to cover the margin call and bring the trading account back into standards.

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