Maintenance Margin

The maintenance margin is the minimum amount of equity an investor must maintain in their margin account after borrowing funds to buy securities. If the value of the securities falls below this threshold, the broker may issue a margin call, requiring the investor to deposit additional funds or sell securities to bring the account back to the required level. The maintenance margin ensures that the account retains enough equity to cover potential losses.

Example

An investor buys stocks on margin, and the maintenance margin is set at 25%. If the account’s equity falls below this percentage, the investor receives a margin call from their broker.

Key points

• The minimum equity an investor must maintain in their margin account after borrowing funds to buy securities.

• If equity falls below the threshold, the broker issues a margin call.

• Ensures the account has enough equity to cover potential losses.

Quick Answers to Curious Questions

What happens if the maintenance margin is not met?

The investor receives a margin call, requiring them to deposit additional funds or sell securities to meet the required equity level.

Why is maintenance margin important?

It ensures that the investor maintains sufficient equity in their margin account to cover potential losses, protecting both the investor and the broker.

How does the maintenance margin differ from the initial margin?

The initial margin is the amount required to open a margin position, while the maintenance margin is the minimum equity required to keep the position open.