Margin Loan Availability

What is Margin Loan Availability?

Margin loan availability portrays the amount in a margin account that is currently accessible for purchasing securities on margin or the amount that is accessible for withdrawal. A margin account makes loans accessible to the customer of a brokerage firm involving the customer's securities in their account as collateral.

How Margin Loan Availability Works

Margin loan availability tells a brokerage customer how much money in their margin account is currently accessible for purchasing securities on margin and how much is accessible for withdrawal. As the value of the securities in the account rises and falls, the amount of money that opens up for loan likewise changes, since the securities need to cover the amount made accessible for the loan. In the event that the customer's securities drop in value, so does the margin loan availability.

Margin loan availability can be utilized in several specific settings:

1. To show the dollar amount in an existing margin account that is currently accessible for purchasing securities. For new accounts, this addresses the percentage value of the current balance that is accessible for future margin purchases.
2. To show the dollar amount accessible for withdrawal from an account with existing marginable positions being utilized as collateral.

Margin loan availability will change daily as the value of margin debt (which incorporates purchased securities) changes. In any case, it may not reflect pending trades that in the middle of between the trade date and the settlement date.

Brokerage firms are required to impose a maintenance requirement on margin accounts, which is a percentage of the total market value of the securities purchased on margin. In the event that the margin loan availability amount — basically, the equity in an investor's account — falls below the maintenance margin, the investor might be due for a margin call, which is a conventional request to sell a portion of the marginable securities or deposit extra cash into the account, typically in three days or less. The Federal Reserve Board, self-regulatory organizations (SROs) like the Financial Industry Regulatory Authority (FINRA), and the securities exchanges have rules overseeing margin trading, however brokerage firms can likewise set more restrictive requirements all alone.

Margin loan availability rises and falls with the value of the securities in an investor's margin account. On the off chance that the account's equity drops too low, the investor might face a margin call and need to sell securities to cover the shortfall.

Illustration of Margin Loan Availability

Suppose that Bert M. is a client at Ernie's Brokerage Firm. Bert has a margin account for certain securities in it. These securities are held as collateral by Ernie's Brokerage Firm for any money Bert acquires to buy securities or pull out from the account.

The money borrowed from Ernie's firm to buy these extra securities or for a withdrawal is called a margin loan. The accessible amount that Bert can require some investment is called the margin loan availability and depends on the current value of his pledged securities.