Investor's wiki
en English
Navigation
Home Glossary
InvestingStocksBondsCryptoPersonal FinanceFundamental AnalysisTechnical AnalysisTradingBankingTaxes
Disclaimer Terms of Use Privacy Policy Cookie Policy
Navigation
Home Glossary
InvestingStocksBondsCryptoPersonal FinanceFundamental AnalysisTechnical AnalysisTradingBankingTaxes
Disclaimer Terms of Use Privacy Policy Cookie Policy

Maintenance Margin

Maintenance Margin
TradingTrading Skills and EssentialsTrading Skills

What Is Maintenance Margin?

Maintenance margin is the base equity an investor must hold in the margin account after the purchase has been made; it is as of now set at 25% of the total value of the securities in a margin account according to Financial Industry Regulatory Authority (FINRA) requirements.

Grasping Maintenance Margin

Despite the fact that FINRA requires a 25% least maintenance margin, numerous brokerage firms might require that as much as 30% to 40% of the securities' total value ought to be accessible. Maintenance margin is likewise called a base maintenance or maintenance requirement.

A margin account is an account with a brokerage firm that permits an investor to buy securities including stocks, bonds or options — all with cash loaned by the broker. All margin accounts, or purchasing securities on margin, have severe rules and regulations. The maintenance margin is one such rule. It specifies the base amount of equity — the total value of securities in the margin account minus anything borrowed from the brokerage firm — that must be in a margin account consistently as long as the investor holds on to the securities purchased.

So on the off chance that an investor has $10,000 worth of equity in their margin account, they must keep a base amount of $2,500 in the margin account. On the off chance that the value of their equity increments to $15,000, the maintenance margin additionally ascends to $3,750. The investor is hit with a margin call in the event that the value of securities falls below the maintenance margin.

Margin trading is regulated by the federal government and other self-regulatory agencies with an end goal to relieve possibly devastating losses for the two investors and brokerages. There are numerous regulators of margin trading, the most important of which are the Federal Reserve Board and FINRA.

Margin Accounts versus Maintenance Margins

Investors and brokerage firms must consent to an arrangement before opening a margin account. As indicated by the terms of the agreement set forward by FINRA and the Federal Reserve Board, the account requires a base margin be met before investors can trade on the account. The base or initial margin must be somewhere around $2,000 in cash or securities.

The Federal Reserve Board's Regulation T (Reg T) sets a limit on how much an investor can borrow, which depends on half of the price of the security purchased. A few brokers require in excess of a half deposit from the investor.

When an investor buys a security on margin, the maintenance margin comes full circle with FINRA requiring that no less than 25% of the total market value of the securities be in the account consistently. In any case, many brokers can require more as stipulated in the margin agreement.

On the off chance that the equity in a margin account falls below the maintenance margin, the broker issues a margin call, which expects that the investor deposit more cash into the margin account bring the level of funds up to the maintenance margin or liquidate securities to satisfy the maintenance amount. The broker reserves the right to sell the securities in a margin account, sometimes without talking with the investor, to meet the maintenance margin. Typically the investor will receive a warning from their broker sole upon proceeded with inability to pay the margin call will action be taken. A Federal Call is a special sort of margin call issued by the federal government.

Maintenance essentials likewise kill a portion of the risk to the brokerage in case the investor defaults on the loan.

Maintenance margins, margin calls, Reg T and FINRA regulations all exist since margin trading can possibly bring about soaring increases — as well as epic losses. Such losses are a tremendous financial risk, and whenever left uncontrolled can unsettle the securities markets, as well as possibly upset the whole financial market.

Features

  • Maintenance margin is at present set at 25% of the total value of the securities in a margin account according to FINRA requirements.
  • Maintenance margin is the base amount of equity that an investor must keep up with in the margin account after the purchase has been made.
  • The investor might be hit with a margin call assuming that the account equity falls below the maintenance margin threshold which might require that the investor liquidate positions until the requirement is fulfilled.