What is a maintenance margin example? You might be wondering what this is and why you might need one. Here’s a quick example. You’ve got a stock with a 20% initial margin requirement, and your maintenance margin requirement is half of that. The account might fall to PS50 and you’ll receive a margin call. You’ll need to deposit the additional funds into your margin account or close any other open trades in order to maintain your position.
First, the initial margin is the amount of money you’ll need to trade. Then, if your position drops below 80% of your initial margin, a margin call is issued, instructing you to deposit additional funds into your margin account. A maintenance margin example is only applicable when trading CFDs or spread betting using margin. To understand the difference between a margin call and a maintenance margin, you need to understand what they are.
Your initial margin is the amount you deposit to open a position. A maintenance margin example shows you how much you have to deposit to maintain the position. In the first example, you’d need to deposit 50% of the amount to initiate a trade, while the second one would require $3,750. This means you need to deposit a minimum of $3,750 to maintain the position and then reinvest the difference into another position. The difference between the initial margin and the maintenance margin is the amount of capital you have in your account to maintain your position.
As you can see, if you’ve gotten your initial margin and the SMA up, you should be able to sell a similar amount of stock. But, as the price of the stock drops, you might end up with less than your maintenance margin requirement, or you may end up liquidating your position altogether. The maintenance margin example should help you better understand the implications of this ratio in your trading. This is because your buying power may be limited by your maintenance requirement.
As you can see, margin trading involves large amounts of money and is very risky. FINRA and the Federal Reserve Board regulate the process of margin trading. For example, investor A wants to go long on 200 shares of Company B, which trade for $200 a share. His total open position would be $40,000, so his maintenance margin would be $12,000, or 30% of his account balance. However, if he fails to maintain this margin requirement, he would be forced to sell the shares.
Generally, the minimum maintenance margin requirement is 25% of total account value. Brokerages can impose even stricter margin requirements, but they’re usually set at thirty or forty percent. The percentage will increase as the volatility of a stock increases. The equity above your maintenance margin requirement is called your maintenance access, or house surplus. If you’re short on funds, the maintenance margin requirement may be higher. So, be sure to understand the difference between a maintenance margin example and a minimum maintenance requirement.