What Is Maintenance Margin?

Maintenance margin is the minimum equity an investor must hold in the margin account after the purchase has been made; it is currently set at 25% of the total value of the securities in a margin account as per 澳洲幸运5ඣ官方开奖结果体彩网:Financial Industry Regulatory Authority (FINRA) requirements.

Understanding Maintenance Margin

Although FINRA requires a 25% minimum maintenance margin, many brokerage firms may require that as much as 30% to 40% of the securities' total value should be available. Maintenance margin is 𝔍also called a minimum maintenance or maintenance requirement.

A 澳洲幸运5官方开奖结果体彩网:margin account is an account with a brokerage firm that allows 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 strict rules and regulations. The maintenance margin is one such rule. It stipulates the mini⛦mum amount of equity—the total value of securities in the margin account minus anything borrowed from the brokerage firm—that must be in a marg🃏in account at all times as long as the investor holds on to the securities purchased.

So if an investor has $10,000 worth of equity in their margin account, they must maintain a minimum amount of $2,500 in the margin account. If the value of their equity increases to $15,000, then the maintenance margin also rises to $3,750. The investor is hit with a 澳洲幸运5官方开奖结果体彩网:margin call if the va🤪lue of🍰 securities falls below the maintenance margin.

Margin trading is regulated by the federal government and other self-regulatory agencies in an effort to mitigate potentially crippling losses for both investors and brokerages. There are multiple regulators of margin trading, the most important of which are the 澳洲幸运5官方开奖结果体彩网:Federal Reserve Board and FINRA.

Margin Accounts vs. Maintenance Margins

Investors and brokerage firms must sign an agreement before opening a margin account. According to the terms of the agreement set forth by FINRA and the Federal Reserve Board, the account requires a minimum margin be met before investors can trade on the account. The minimum or initial margin must be at least $2,000 in cash or securities.

The Federal Reserve Board’s澳洲幸运5官方开奖结果体彩网: Regulation T (Reg T) sets a limit on how much an investor can borrow, which is up to 50% of the price of the security purchased. Some brokers require more than a 50% deposit from the investor.

Once an investor buys a security on margin, the maintenance margin goes into effect with FINRA requiring that at least 25% of the total market value of the securities be in the account at all times. Still, many brokers can require more as stipulated in the margin agreement.

If the equity in a margin account falls below the maintenance margin, the broker issues a margin call, which requires that the investor deposit more cash into the margin account bring the level of funds up to the maintenance margin or liquidate securities in order to 澳洲幸运5官方开奖结果体彩网:fulfill the maintenance amount. The broker reserves the right to sell the securities in a margin account, sometimes without consulting the investor, to meet the maintenance margin. Typically the investor will receive a warning from their broker first, and only upon continued 澳洲幸运5官方开奖结果体彩网:failure to pay the margin call will action be taken. A 澳洲幸运5官方开奖结果体彩网:Federal Call is a special kind of margin call issued by the federal government.

Initial and maintenance account limits, maintenance and Reg T margin calls, and FINRA regulations all exist because margin trading has the potential to incur skyrocketing gains—as well as colossal losses. Such losses are a huge financial risk and, if left u𝄹nchecked, can unsettle the securities markets, as well as potentially disrupt the entir🅠e financial market.