Margin Loans

Margin Requirements Scenarios
Margin Buying Power Scenarios
Margin Call Scenarios
Good Faith Violations and 90-Day Restriction Scenarios
Pattern Day Trader Scenarios


Margin requirement scenarios:

Scenario 1: Concentrated Account

You have $10,000 of cash.

  • What is the margin requirement (initial margin requirement) needed to purchase ABC stock (regular requirement)?
  • What is the maintenance margin requirement?

Answer

  • 50% → You can purchase up to $20,000 worth of ABC;
  • 50% → The maintenance margin requirement stays 50% because the account is concentrated. If the total value of your account drops below $20,000, a margin call will occur.

Scenario 2: Non-Concentrated Account

You have $15,000 worth of stock ABC bought using $5,000 on margin and $10,000 in cash.

  • What is the margin requirement (initial margin requirement) to purchase stock XYZ (regular requirement)?
  • How much XYZ stock can you purchase?

Answer:

  • 50%
  • $15,000 worth of ABC stock allows you to borrow up to $10,500 because ABC stock has a standard maintenance margin requirement of 30%.

    You have now used $5,000 out of your $10,500 margin buying power, which leaves you with $10,500 - $5,000 = $5,500 in cash power. The $5,500 can generate another $5,500 in margin buying power which allows you to purchase up to $11,000 worth of XYZ stock.

Scenario 3: The value of my positions did not drop, why am I getting margin calls?

Usually a margin call occurs when the market value of your marginable positions drops and you failed to maintain your equity above the minimum maintenance requirement.

But there are cases when the value of your positions goes up and you receive a margin call. The reason is that even though you have multiple positions in your account, your account becomes concentrated if the value of one of the positions is over 60% of the market value of your marginable securities.

e.g. You have $24,000 worth of marginable securities in your account consisting of $8,000 worth of equity and $16,000 worth of margin:

Symbol Market Value %
ABC $5,000 20.83%
XXX $5,000 20.83%
XYZ $14,000 58.33%

The minimum maintenance margin requirement for you now is:
($5,000 * 30%) + ($5,000 * 30%) + ($14,000 * 30%) = $7,200 → smaller than the $8,000 equity.

Today, the price of stock XYZ goes up and the market value reaches $16,000. The new proportion of each holding in your account is as follows:

Symbol Market Value %
ABC $5,000 19.23%
XXX $5,000 19.23%
XYZ $16,000 61.53%

Since the margin amount always stays the same, your account is now worth $16,000 on margin and $10,000 in equity.

The market value of XYZ is now over 60% of all the marginable securities. If the maintenance margin requirements for the 3 positions are all the standard requirement of 30%, the maintenance requirement of stock XYZ becomes 50% because now the account is considered concentrated.

At this time, the minimum margin requirement for you becomes:
($5,000 * 30%) + ($5,000 * 30%) + ($16,000 * 50%) = $11,000 → larger than the $10,000 equity and a margin call occurs.


Promotions
Live Chat

Want to speak with someone regarding basic questions in real-time? Try our interactive live chat service. One of our representatives can provide assistance with your inquiries. Go