Maintenance Margin
What is a maintenance margin?
The maintenance margin is the minimum amount an investor must keep in their account when buying securities with money borrowed from a broker. This acts as a buffer to reassure the broker that an investor is able to repay their debt.
Where have you heard about maintenance margins?
As soon as an investor begins borrowing money from a broker, they will encounter a maintenance margin usually set at 25% of the borrowed securities' total value.
What you need to know about maintenance margins...
The maintenance margin protects the money that brokers lend out to investors. If an investor allows the equity in their account to drop below the maintenance margin, the broker will issue a margin call and close any open market positions until the investor increases the amount of equity. The equity could be in the form of cash or shares.
Because security prices can fall and the maintenance margin is a percentage of value, it is not a fixed amount.
Financial regulations and the policies of your broker define what the maintenance margin will be on individual accounts.