What Is a House Call in Finance and How Does It Work?

Investors who trade on margin borrow money from their brokerage to buy securities, amplifying both potential gains and losses. However, this borrowed capital comes with strict requirements, and failing to meet them can lead to a house call—a demand from the broker for additional funds or securities.

Margin Requirements

Brokerages impose margin requirements to manage risk and ensure clients maintain sufficient equity in their accounts. These requirements follow regulatory standards set by the Financial Industry Regulatory Authority (FINRA) and the Federal Reserve Board, but individual brokers often enforce stricter thresholds.

Regulation T, established by the Federal Reserve, mandates an initial margin requirement of 50%, allowing investors to borrow up to half the purchase price of securities. Maintenance margin rules dictate the minimum equity percentage that must be preserved, with FINRA Rule 4210 setting this at 25%. Many brokers require higher levels, often around 30% to 40%, depending on asset class and volatility.

Different securities carry varying margin requirements based on risk profiles. Highly liquid, blue-chip stocks typically have lower maintenance margins, while leveraged ETFs, small-cap stocks, and options positions require significantly higher levels. Brokers also impose house margin requirements that exceed regulatory minimums and fluctuate based on market conditions. During periods of heightened volatility, firms may temporarily raise thresholds to protect against rapid price swings.

Trigger Conditions

A house call occurs when an investor’s margin account falls below the broker’s required equity threshold, prompting a demand for additional funds or securities. This decline typically results from market movements that erode the account’s equity. Unlike regulatory margin calls, which follow standardized minimums, house calls stem from brokerage-specific risk assessments that adjust based on market conditions, portfolio composition, and leverage levels.

Price volatility plays a major role in triggering a house call. When securities held on margin decline sharply, the account’s equity can quickly drop below the broker’s internal maintenance requirement. For example, if a brokerage enforces a 35% maintenance margin and an investor’s equity falls to 30% due to a sudden downturn, the broker may issue a house call demanding additional capital. These fluctuations are particularly pronounced in high-beta stocks, leveraged ETFs, or derivatives positions, where price swings can be extreme.

Portfolio concentration also increases the likelihood of a house call. Accounts heavily weighted in a single stock or sector face greater risk if that asset experiences a steep decline. Brokers monitor diversification levels and may impose higher margin requirements on concentrated positions to mitigate exposure. An investor heavily invested in a single volatile stock may face stricter margin terms than one diversified across multiple industries.

Financial Consequences

Failing to meet a house call can lead to forced liquidation, where the brokerage sells securities in the account to restore the required margin level. This process is often automated, leaving investors little control over which assets are liquidated. If the market is experiencing a sharp downturn, these sales may occur at depressed prices, locking in losses.

Beyond asset sales, investors may incur additional fees and interest charges. Brokerages often impose administrative fees for processing margin calls, typically ranging from $25 to $100. If liquidations do not fully satisfy the margin deficiency, the account may enter a negative balance, subjecting the investor to high-interest rates on the remaining debt. Margin loan rates, often tied to the broker’s base rate plus a percentage, can exceed 12% annually in 2024, compounding financial strain.

Repeated house calls or failure to maintain sufficient margin may prompt brokers to restrict trading privileges. This can include reducing margin allowances, requiring higher cash deposits, or converting the account to a cash-only status. These restrictions limit an investor’s ability to leverage positions, affecting future trading strategies. In severe cases, firms may report margin deficiencies to credit bureaus, impacting an investor’s ability to secure loans or open new brokerage accounts.

Differences From Federal Margin Calls

Federal margin calls, or Regulation T calls, occur when an investor fails to meet the initial margin requirement at the time of purchase. House calls, in contrast, emerge after a trade has been executed and reflect a broker’s internal assessment of ongoing account risk rather than a regulatory shortfall at the time of purchase.

Broker-imposed house calls are more dynamic, adjusting based on market conditions and portfolio factors rather than a fixed regulatory threshold. During periods of high volatility, brokers may tighten margin requirements without regulatory intervention. This flexibility allows firms to respond to sudden market shifts but also introduces unpredictability for traders.

The resolution process also differs. Regulation T calls typically allow investors a set period, often four business days, to deposit additional funds before the broker takes action. House calls, however, can demand immediate resolution, with some brokers liquidating positions within the same trading session if the deficiency is not promptly addressed.