What is a maintenance margin?

In margin trading, the maintenance margin is the minimum amount of funds that a trader must hold in their portfolio to avoid being issued a margin call, for as long as they are actively involved in a trade. If a trade they enter decreases in value, the trader may owe money, which is taken from their account.

How do you calculate a margin call?

If the brokerage’s maintenance margin is 25%, the formula for calculating the account balance that triggers the margin call is as follows: Margin Account Value = ($12,000 Margin Loan) / (1 – 0.25 Maintenance Margin %) So if the investor’s margin account dips below $16,000, they would receive a margin call.

What are maintenance minimums & margin calls & FINRA regulations?

Maintenance minimums also eliminate some 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 because margin trading has the potential to incur skyrocketing gains—as well as colossal losses.

What is a margin account?

Margin accounts enable investors to trade with a percentage of the purchase price covered by a brokerage loan. As part of being able to borrow cash and trade on margin, the investor is obligated to maintain a certain amount of funds in their margin account — which is the maintenance margin.