House Call
What Is a House Call?
A house call is a type of margin call where a brokerage firm demands an investor deposit additional funds because their account equity has fallen below the firm's own "house" maintenance requirement, which is stricter than regulatory minimums.
A house call is a specific notification from a brokerage firm alerting a trader that the equity in their margin account has dropped below the firm's internal standards. To understand a house call, you must first understand the difference between regulatory requirements and "house" requirements. The Federal Reserve (Regulation T) sets the initial margin requirement at 50%—the amount of cash you need to open a position. The Financial Industry Regulatory Authority (FINRA) sets the minimum *maintenance* margin requirement at 25% of the total market value of the securities. This means if you buy stocks on margin, your equity must never fall below 25%. If it does, you get a "maintenance call." However, brokerage firms are allowed—and often encouraged—to set stricter standards to protect themselves. These are called "house requirements." For example, a broker might require you to maintain 30% or 35% equity. If your equity falls below this 35% level but is still above the FINRA 25% minimum, you will receive a "house call." It is essentially a margin call triggered by the broker's safety buffer rather than the regulator's hard floor. The broker is saying, "You are getting too close to the edge for our comfort."
Key Takeaways
- A house call is triggered by the brokerage's internal risk rules, not just federal regulations.
- Brokerages have the right to set "house" maintenance requirements higher than the regulatory minimum of 25%.
- Common house requirements are 30% to 35% or higher for volatile stocks.
- Failure to meet a house call can result in the immediate liquidation of assets.
- House calls help brokerages manage their own risk exposure to client defaults.
- Traders must know their broker's specific house rules to avoid unexpected calls.
How a House Call Works
When you open a margin account, you sign a margin agreement. Buried in the fine print is a clause stating that the broker can set margin requirements higher than the regulatory minimums and can change them at any time without notice. Let's say you hold a portfolio of volatile tech stocks. While the standard maintenance margin is 25%, your broker decides that these stocks are risky and sets a "house" maintenance requirement of 40%. If the value of your stocks drops and your equity percentage falls to 38%, you represent a risk to the broker. Even though you are legally compliant with FINRA (above 25%), you are violating the house rules. The broker will issue a house call, demanding that you either deposit more cash or sell securities to bring your equity back up to 40%. The notification might come via email, app alert, or phone call. If you fail to meet the call promptly—often within 24 hours or even sooner in volatile markets—the broker has the right to sell your securities without consulting you to cover the shortfall. In extreme market crashes, brokers may skip the call altogether and liquidate immediately to protect their capital.
Key Elements of Brokerage Discretion
Specific Securities: Brokers often assign different house requirements to different stocks. A blue-chip stock might have a 30% house requirement, while a volatile small-cap stock might have a 50% or even 100% requirement (meaning no margin allowed). Market Conditions: During periods of extreme market volatility, brokers may universally raise house requirements to buffer against rapid price crashes. Account Concentration: If your account is heavily concentrated in a single stock, the broker may impose a higher house requirement because your risk is not diversified.
Important Considerations for Traders
The most dangerous aspect of a house call is that it can catch traders off guard. You might be calculating your risk based on the 25% regulatory minimum, thinking you have plenty of room, only to be hit with a liquidation order because you breached the 35% house limit. Traders must read their broker's margin schedule carefully. Do not assume all stocks have the same margin requirements. Furthermore, remember that brokers are not required to give you time to meet the call. While they usually offer a grace period, in a fast-crashing market, they can liquidate positions immediately to protect the firm's capital.
Real-World Example: House Call Calculation
You buy $20,000 worth of Stock XYZ using $10,000 of your own cash and borrowing $10,000 from the broker. Your equity is 50%. The broker has a "house" maintenance requirement of 35%.
FAQs
A Fed call (Reg T) is for the initial purchase (50%). A maintenance call is based on FINRA's minimum (25%). A house call is based on the brokerage's own higher requirement (e.g., 30-40%).
Yes. If you are in a margin call (including a house call), the broker has the right to liquidate your assets immediately to cover the risk. They are not legally required to notify you first.
Brokers use house calls to protect themselves. If a client's account goes to zero or negative, the broker is on the hook for the loss. Higher requirements provide a buffer against this risk.
No. House requirements vary by firm. Some discount brokers may have stricter rules to automate risk management, while full-service brokers might be more flexible.
It varies, but usually 1-3 days. However, in volatile markets, the broker may demand immediate payment or liquidate instantly.
The Bottom Line
A house call is a critical risk management tool for brokerage firms and a vital warning sign for traders. It represents the "safety cushion" a broker maintains above the regulatory minimums. Understanding that your broker can—and will—enforce stricter rules than the government is essential for managing a margin account. Ignoring house requirements or failing to check the specific margin rating of the stocks you trade can lead to forced liquidations and locked-in losses. Always maintain a healthy buffer of excess liquidity in your account to absorb market fluctuations without triggering these internal alarms. While house calls protect the broker from insolvency, they can be devastating for an unprepared trader. Smart margin management means treating the house requirement, not the regulatory minimum, as your true limit.
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Key Takeaways
- A house call is triggered by the brokerage's internal risk rules, not just federal regulations.
- Brokerages have the right to set "house" maintenance requirements higher than the regulatory minimum of 25%.
- Common house requirements are 30% to 35% or higher for volatile stocks.
- Failure to meet a house call can result in the immediate liquidation of assets.