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 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, this is what happens if the price for the security in the previous example drops from $60 to $50 per share:
LMV – debit balance = equity
$50,000 – $30,000 = $20,000
The equity has now dropped from 50% to 40% of the LMV, creating a margin deficiency. A margin deficiency is the amount by which the required margin exceeds the