As a general rule, under Federal Reserve Board Regulation T, companies can lend a customer up to 50% of the total purchase price of a margina warranty for new or initial purchases. Under these rules, the client`s equity in the account cannot in principle fall below 25 per cent of the current market value of the securities in the account. Otherwise, the client may be required to deposit more funds or securities to maintain equity at 25% (called Margin Call). Otherwise, the entity may have the effect of liquidating the securities into the client`s account in order to bring the account`s equity back to the required level. If your account is covered by the company`s maintenance requirement, your company will usually make a margin call asking you to deposit more cash or securities into your account. If you are unable to respond to the margin call, your company will sell your securities in order to increase the equity in your account up to or beyond the company`s maintenance needs. A margina account is a brokerage account in which the broker lends cash to the client to buy shares or other financial products. The loan on the account is secured by the securities purchased and in cash and comes with a periodic interest rate. As the client invests with borrowed money, the customer uses leverage that increases profits and losses for the customer. A margina account cannot be used to purchase shares on a margin on an individual pension account, trust or other fiduciary account. In addition, a margin account cannot be used with equity accounts below $2,000. An investor who wishes to purchase securities with broker-dealer assets must apply for a margin account granting credit privileges. When investors borrow money from their margin account, they must pay interest based on the interest plan established by the broker-dealer.
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. However, if the stock had fallen to $2.50, all of the client`s money would have disappeared. Since 1,000 shares – $2.50 is $2,500, the broker would inform the client that the position will be closed, unless the client no longer places capital in the account. The client has lost his money and can no longer hold the position. It`s a call to the margins. A „margin account“ is a kind of broker account in which the broker lends the investor cash to buy securities using the account. The margin increases the purchasing power of investors, but also exposes investors to the potential for significant losses.
Here`s what you need to know about Margin. For a client who is a „model tag trader,“ FINRA requires the broker to impose special margin requirements on the client`s margin account. In general, these include a minimum capital requirement of $25,000 and a limit limiting the purchasing power of the margin account to four times the surplus of the maintenance margin at the close of the previous day`s trading for equity securities.