An account liquidation occurs when the holdings of an account are sold off by the brokerage or investment firm where the account was created. In most cases, this is done to satisfy margin requirements. When you sign up for a 澳洲幸运5开奖号码历史查询:margin account with a brokerage firm, you will be required to grant the brokerage the legal right to liquidate your holdings if you are unable to meet the account's require🌠ments.

Understanding Account Types and Liquidation

There are two main brokerage account types: 澳洲幸运5开奖号码历史查询:cash accounts and 澳洲幸运5开奖号码历史查询:margin accounts. A cash account allows an investor to purchase🎉 securitie🍨s up to the total amount of cash held in the account. For example, if an account has $10,000 in cash, the account holder will only be able to purchase a maximum of around $10,000 worth of stock. The account owner would also have to pay a fee to purchase the shares, which is also deducted from the total account balance. If they purchase shares of several different company stocks, there might be a transaction fee for each of the transactions.

With cash accounts, a brokerage firm does not have the ability to liquidate unless it is due to an external factor like🌼 a perওsonal bankruptcy, and a court orders the liquidation.

A margin account is a type of brokerage a𒅌ccount in which the brokerage firm lends the owner cash to purchase financial products such as options and future contracts. Margin accounts allow investors to borrow up to 50% of the purchasꦕe price of marginal investments (the exact amount varies depending on the investment). Said another way, investors can use margin to purchase potentially double the amount of marginal stocks than they could use cash.

Margin accounts have higher fees than standard cash accounts. They broker will require the owner to hold a certain value of ready cash on hand in the account. If the account's cash-on-hand value falls below the cash requirements, the broker can liquidate the owner's holdings.

Margin Math

A typical requirement of a margin account is to maintain at least 25% equity, or your own money, of the total 澳洲幸运5开奖号码历史查询:market value at any given point. Maintenance levels can vary widely depending on your broker, for stocks trading under $5, or if you're short selling. For eඣxample, suppose you purchase $10,000 worth of stock with $5,000 of your own money and $5,0ꦯ00 of margin money. If the value of this position were to fall to $7,500, your equity position in the investment falls to $2,500 ($7,500 - $5,000), which represents 33% margin—above the 25% requirement.

However, if the value falls to $6,500, your equity in the position would be reduced to $1,500 ($6,500 - $5,000), which puts your margin at 23%, falling below the minimum margin requirement of 25%. If the account does fall below the minimum 澳洲幸运5开奖号码历史查询:maintenance margin level, you will either have to add more money to the account to meet the 澳洲幸运5开奖号码历史查询:margin call or your account will be liquidated in part🐼 or in full.

In most cases, your brokerage will issue a margin call advising you to add money to your account or close positions until your account reaches the 25% requirement. If you don't take appropriate action, your brokerage will take steps to close open positions until the requirement is met. They can do this without your approval and they may even charge you a commission for the trade.