Legal Definitions - margin deficiency

Definition: Margin deficiency refers to the situation where the required margin for a security exceeds the equity in a margin account.

Example: Let's say you have a margin account with $10,000 equity and you want to buy $20,000 worth of stock. The broker requires a 50% margin, which means you need to have $10,000 in cash or securities in your account. However, if the stock price drops and the value of your stock falls to $15,000, your equity in the account will be $5,000. This means you have a margin deficiency of $5,000, which is the difference between the required margin of $10,000 and your equity of $5,000.

Another example could be if you have a margin account with $5,000 equity and you want to buy $10,000 worth of stock. The broker requires a 50% margin, which means you need to have $5,000 in cash or securities in your account. However, if the stock price drops and the value of your stock falls to $7,500, your equity in the account will be $2,500. This means you have a margin deficiency of $2,500, which is the difference between the required margin of $5,000 and your equity of $2,500.

These examples illustrate how margin deficiency can occur when the value of the securities in a margin account falls below the required margin. This can lead to a margin call, where the broker requires the investor to deposit more cash or securities to cover the margin deficiency.