A Margin Requirement is the percentage of marginable securities that an investor must pay for with his/her own cash. When an investor holds securities bought on margin, in order to allow some fluctuation in price, the minimum margin requirement at Firstrade for most stocks is lowered to 30%.

Because of the pricing/trading mechanisms used with mutual funds, they cannot be bought and sold like stocks. For this reason, you cannot buy mutual fund shares using a margin account.

Before trading on margin, FINRA, for example, requires you to deposit with your brokerage firm a minimum of $2,000 or 100 percent of the purchase price of the margin securities, whichever is less. This is known as the “minimum margin.” Some firms may require you to deposit more than $2,000.

Although FINRA requires a 25% minimum maintenance margin, many brokerage firms may require that as much as 30% to 40% of the securities’ total value should be available. So if an investor has $10,000 worth of equity in their margin account, they must maintain a minimum amount of $2,500 in the margin account.

Understanding Minimum Margin The minimum margin, which states that a broker can’t extend any credit to accounts with less than $2,000 in cash (or securities) is the first requirement. Second, an initial margin of 50% is required for a trade to be entered.

Example of Non-Marginable Securities As well, mutual funds are allowed if they’re owned form more than 30 days, as are investment-grade corporate, treasury, municipal, and government bonds. IPOs above a certain volatility level are not marginable.

Non-marginable securities are not allowed to be purchased on margin at a particular brokerage, or financial institution. They must be fully funded by the investor’s cash. Holdings in non-marginable securities do not add to the investor’s margin buying power.

For example, if you have $5,000 and would like to purchase stock ABC which has a 50% initial margin requirement, the amount of stock ABC you are eligible to buy on margin is calculated as follows: Buying power * 50% >> is less than or equal to $5,000.

If you do not meet the margin call, your brokerage firm can close out any open positions in order to bring the account back up to the minimum value. This is known as a forced sale or liquidation. Your brokerage firm can do this without your approval and can choose which position(s) to liquidate.

To calculate the margin required for a long stock purchase, multiply the number of shares x the price x the margin rate. The margin requirement for a short sale is the regular margin requirement plus 100% of the value of the security.

Initial margin requirement For new purchases, the initial Regulation T margin requirement is 50% of the total purchase amount. So if you wanted to buy $10,000 of ABC stock on margin, you would first need to deposit $5,000 or have equity equal to $5,000 in your account.

Special Margin Requirements: Stockbrokers . Some stockbrokers have higher maintenance margin requirements — often in the range of 30 to 40 percent. The effect is that it takes a smaller drop in the stock price before the investor’s equity is too low and the investor is forced to put up extra cash.

While open-end mutual funds cannot be purchased on margin, ETFs and closed-end mutual funds can often be purchased in a margin account. Buying security on margin involves purchasing that security by borrowing the money to make a purchase. This doesn’t work for all types of securities, with mutual funds being one of those types.

margin requirement. Definition. The amount that an investor must deposit in a margin account before buying on margin or selling short, as required by the Federal Reserve Board’s Regulation T .

Marginable securities refer to stocks, bonds, futures or other securities capable of being traded on margin. Securities traded on margin, paid for by a loan, are facilitated through a brokerage or other financial institution that lends the money for these trades.