Price Declines and Restricted Margin Accounts
Once the securities are bought, they may either rise or fall in value. All margin accounts are “marked to the market” daily. That means that securities in the margin account are continuously revalued consistent with their current market price, as measured by the previous day’s last sale.
If the securities fall in value, the long market value falls, and the equity also falls.
For example, if the security’s price drops to $50 per share, LMV in the customer’s margin account also drops to $50 per share:
LMV – Debit Balance = Equity
$50,000 – $30,000 = $20,000
The amount the customer borrowed, the debit balance of $30,000, remains unchanged. This means that the customer’s equity has now dropped to $20,000. The customer may have put up $30,000 when she bought the stock, but if she were to sell it today, she would only get $20,000 back after paying off her loan.