What does the term 'margin deficiency' refer to?

What does the term 'margin deficiency' refer to?

• A. When the total investments exceed the credit limit
• B. When there is insufficient cash or securities in the margin account
• C. When all investment positions are profitable
• D. When stocks in the portfolio are performing well

Answer: (B)

The term 'margin deficiency' specifically refers to a situation where there is insufficient cash or securities in a margin account to meet the required minimum balance. In the context of margin accounts, brokers require that customers maintain a certain level of equity in their accounts as a safety measure to cover potential losses. When the equity drops below this required threshold, it results in a margin deficiency. This can trigger a margin call, prompting the investor to either deposit additional funds or liquidate positions to restore the account to the required level.

In contrast, other options do not accurately describe the concept of margin deficiency. For example, exceeding the credit limit pertains to the maximum amount one can borrow and is unrelated to the sufficiency of assets in the margin account. Similarly, having profitable investment positions or stocks performing well does not relate to margin deficiency, as these situations indicate a healthy account rather than a deficiency.