The Margin Agreement

If the equity of a margina account is less than the maintenance margin level, the brokerage will make a margin call to the investor. In a number of days – usually within three days, although there may be fewer in certain situations – the investor must deposit more cash or sell shares to compensate for some or all of the difference between the price of the security and the maintenance margin. Marginal accounts can be very risky and not suitable for everyone. Before you open a margin account, you need to know, but if your company needs 40% maintenance, you wouldn`t have enough equity. The company would require you to have 4,800 USD of equity (40 percent of 12,000 USD – 4,800 USD). Their equity of $4,000 is less than the company`s maintenance costs of $4,800. As a result, the company can give you a „margin call“ to deposit additional equity into your account, since the equity in your account has dropped by $800 below the company`s maintenance costs. Special Margin Requirements – Pattern Day Trader Margin Requirements For more information on margin rules for day traders, please see our Investor Bulletin: Margin Rules for Day Trading. Once you`ve purchased shares on Margin, FINRA rules require your broker home to impose a „maintenance requirement“ on your Margin account.

This „maintenance requirement“ indicates the minimum amount of equity you must keep in your margin account at any time. The equity in your margin account is the value of your securities, minus the shares you owe to your brokerage firm. FINRA rules require that this „maintenance requirement“ be at least 25 per cent of the total market value of securities purchased on margina (i.e. „marginal securities“). However, many brokerage firms have higher maintenance requirements, usually between 30 and 40 percent and sometimes higher, depending on the type of securities purchased. The downside of using the margin is that if the share price falls, significant losses can increase rapidly. Suppose the stock you bought for $50 drops to $25.