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Margin calls

**Margin Calls**

In the context of energy commodities trading, as with other forms of trading, a margin call is a request from a broker to an investor to deposit additional money or securities into their account when the value of the securities held falls below a certain level, known as the maintenance margin. The maintenance margin is the minimum amount of equity that must be maintained in the margin account at all times.

Margin calls occur because energy commodities are often purchased using borrowed funds, with the securities themselves used as collateral for the loan. This practice is known as “trading on margin.” If the market value of the energy commodity declines significantly, it can cause the equity in the account to fall below the maintenance margin, triggering a margin call.

When a margin call occurs, the investor must either deposit more funds, provide additional collateral, or sell some of the securities in order to restore the account to the required maintenance margin level. If the investor does not meet the margin call, the broker has the right to sell the securities in the account to bring the balance up to or above the maintenance margin without consulting the investor. This can result in significant losses if the market is in a downturn.

Margin calls are a mechanism to protect brokers from losses that might occur when investors borrow to invest and markets move against them, potentially leading to a situation where the debt owed exceeds the value of the borrowed securities.

For more information about margin calls and their implications in trading, you can visit the following web pages:

1. Investopedia – Margin Call Definition:
Investopedia provides a comprehensive explanation of margin calls, including an overview of how they work, examples, and their implications for traders.

2. CME Group – Performance Bonds/Margins:
CME Group offers educational resources that clarify the concept of margins and margin calls, specifically within the context of futures trading, which is highly relevant for energy commodities trading.

This A.I.-generated glossary is intended to provide a convenient means to understand terminology used on this website in the context of physical commodities trading. Some terms may have alternative and/or expanded definitions that may not be relevant here and thus not included. Sources provided are for reference and not intended to be an endorsement of the broader content on that website. Suggestions, questions, or corrections can be provided in the comment box on definition pages.