initial margin requirement


Initial margin requirement

When buying securities on margin, the proportion of the total market value of the securities that the investor must pay for in cash. The Security Exchange Act of 1934 gives the Board of Governors of the Federal Reserve the responsibility to set initial margin requirements, but individual brokerage firms are free to set higher requirements. In futures contracts, initial margin requirements are set by the exchange.

Initial Margin

The money or securities an investor keeps in a margin account in order to be able to borrow from a brokerage for short sales or other purposes. The initial margin requirement is kept as collateral until the brokerage calls the margin and the client pays back what is owed. FINRA requires that the initial margin requirement kept must be at least 25% of the amount borrowed, while some brokerages have initial margin requirements of up to 50%.

initial margin requirement

The minimum portion of a new security purchase that an investor must pay for in cash. For example, with an initial margin requirement of 60%, the most an investor can borrow is $2,000 on a $5,000 purchase. This requirement is determined by the Federal Reserve Board. Also called margin requirement.