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]]>can you really buy on margin? Buying on margin involves taking a partial loan from one’s broker to cover a larger investment than one’s capital can directly cover. A margin call most often occurs when the actual capital invested by the investor falls below a set percentage of the total investment. A margin call can also be triggered if the broker changes their minimum margin requirement – the absolute minimum percentage of the total investment that one must have in direct equity. Some examples would best demonstrate the two circumstances under which a margin call is likely.

Suppose we go through our broker to buy $ 100,000 of stocks. We would say that we borrowed 50,000 from our margin broker to buy shares and invested $ 50,000 of our equity. After a particularly poor week of performance, the stock we initially invested in is now worth just $ 75,000. This leaves our equity of $ 25,000 that we can determine by taking the current value of $ 75,000 and withdrawing the loan value of $ 50,000. If our broker’s minimum margin requirement is, 30%, we will still be fine as the minimum margin requirement in our case would be 30% of $ 75,000, or $ 22,500.

But if the value of the shares falls again next day to $ 60,000, then our equity will be left at just $ 10,000. At this point, our broker will make a margin call and we will be forced to raise at least an additional $ 8,000. We could withdraw money to meet the margin call by selling off a portion of the stock we invested in by taking out another loan from another source or by refilling our equity pool with our own assets.

The second scenario where a margin call can occur is related to brokerage itself, rather than the execution of the market. Let’s assume the same situation as before when we bought $ 100,000 of stocks with $ 50,000 in equity. The same initial downturn happens, leaving us with $ 25,000 in shares on a $ 75,000 investment. The same brokerage has a minimum margin requirement of 30%, so they do not need to issue a margin call.

But sometimes due to the fluctuating market or internal factors, a broker may decide to adjust their minimum margin requirements slightly. If our brokerage was to raise their minimum margin requirement to 35%, the minimum equity would in our case be $ 26,250, so we would be issued a margin call and be forced to withdraw an additional $ 1,250. A margin call is not a big deal in the financial world and it does not reflect badly for an investor being the subject of one. Margin calls are simply part of a margin purchase, and while some people choose to keep their invested equity well above the minimum margin requirement to prevent a margin call, others keep investing at exactly the minimum, triggering a margin call. Every time the market goes down.

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]]>It is true that the margin is equal to the mark-up as to the value in currency (PLN) – the difference between the sale price and the purchase price. Most often, however, both the margin and mark-up are given as a percentage (%). These quantities (expressed as a percentage) are no longer equal. Why? Because they are calculated differently.

The margin is the profit (gross) from the sale, and therefore the unit profit margin is the difference between the price and the cost of the commodity. The profit margin is calculated using the formula:

margin [%] = profit [PLN] / sales price [PLN] = (sale price [PLN] – purchase cost [PLN]) / sale price [PLN]

The profit margin is calculated by the seller when he wants to know what part of the sales revenue is his “profit”:

profit [PLN] = margin [%] * sales price [PLN]

In fact, this is not a real net profit – it is an amount that includes the amount to cover fixed costs, and only a possible surplus is a profit. Therefore, the profit margin is also called the margin to cover (fixed costs).

Knowledge of the margin is needed to determine the break-even point of sales.

The overhead is the amount by which the purchase price of the goods was increased to determine the sale price. The overhead is calculated using the formula:

overhead [%] = sale price [PLN] / purchase cost [PLN] – 100% = (sale price [PLN] – purchase cost [PLN]) / purchase cost [PLN]

The markup is most often used by the seller to determine the sale

price : sales price [PLN] = purchase cost + purchase cost [PLN] * overhead [%] = purchase cost * (100% + markup [%])

How to calculate the margin, knowing the markup? How to calculate the markup, knowing the margin? The relationship between margin and margin can be calculated using the following formulas:

Margin [%] = overhead [%] / (overhead [%] + 100 [%])

Overhead [%] = margin [%] / (100% – margin [%]) )

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