## Margin Loans

Review the margin buying power scenarios below. These examples cover varying initial margin requirements and maintenance margin requirements.

## Scenario 1 :

You have \$10,000 in cash on your account and you wish to purchase stock ABC on margin. If stock ABC has a 50% initial margin requirement, then your margin buying power is as follows:

\$10,000 / 50% = \$20,000 → Your Margin Buying Power

## Scenario 2 :

You have \$10,000 worth of stock ABC bought using \$8,000 in cash and \$2,000 on margin. Now if you would like to buy stock XYZ (regular 50% initial margin requirement) on margin, how much is your margin buying power?

Answer:

Although the initial margin requirement of stock ABC is 50%, the maintenance margin requirement of ABC is 30%.
\$10,000 * (100%-30%) = \$7,000 → the maximum amount you are eligible to borrow.

\$7,000 - \$2,000 = \$5,000
→ Now you have used \$2,000 of the available margin, your current available margin becomes \$5,000 which is also your cash buying power.

\$5,000 / 50% = \$10,000 → the margin buying power for purchasing stock XYZ.

## Scenario 3 :

You have \$10,000 worth of stock ABC bought using \$8,000 in cash and \$2,000 on margin. Now if you would like to buy stock XXX (75% margin requirement) on margin, how much is your margin buying power?

Answer:

Although the initial margin requirement of stock ABC is 50%, the maintenance margin requirement of ABC is 30%.

\$10,000 * (100%-30%) = \$7,000 → the maximum amount you are eligible to borrow.

\$7,000 - \$2,000 = \$5,000
→ Now you have used \$2,000 of the available margin, your current available margin becomes \$5,000 which is also your cash buying power.

\$5,000 / 75% = \$6,666.6 → the margin buying power for purchasing stock XXX.

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