Margin Calls

Margin means leverage. That means you can buy more with less amount of money. Here broker pay the excess amount and charge interest on that excess amount. For this purpose client has to open a margin account with brokers. And initial client has to keep some amount with broker called initial margin and he can take the exposure double the initial margin. This initial margin is depending on the broker-client relationship.
There are tree types of margin client has to pay to broker
1- Initial margin
2- Maintenance margin
3- Call margin

Let’s take an example and understand all the above jargons
A client Mr. Amit Kumar kept Rs. 100000 in his margin account as initial margin. Next day he can buy future worth Rs 200000. Because the can take expose double the initial margin. Third day market crashed and the value of position become Rs. 150000 and the amount in your account become Rs 50000 (i.e. 150000-100000) and now suppose the maintenance margin is 25% that mean he should have minimum 25% of Rs 150000 in his margin account (i.e. Rs 37500) that mean he wont get any margin call. But suppose the maintenance margin is 35%, that is Rs 52500, now here the client will get a margin call of Rs 2500 (i.e. 52500-50000).
Now there is two ways to deal this situation either Client fulfil the maintenance margin condition or broker square off the position and increase the margin in the account.
Advantage and disadvantages
1- One can take more exposure than the investments
2- Margin trading is extremely risky.