Introduction

Welcome to Margin Accounts, one of the most calculation-heavy and frequently tested topics on the Series 7 exam.

Exam Weight: Part of Function 4 (11% / ~14 questions for the Trading & Settlement chapter)

What You'll Learn

In this unit, you'll cover:

• Requirements and Characteristics: How margin accounts work, the margin agreement, hypothecation, and eligible securities
• Product-Specific Rules: Different margin treatment for government bonds, corporate bonds, and mutual funds
• Long Margin Calculations: Debit balance, equity, excess equity, and buying power in long accounts
• Short Margin Calculations: Credit balance, equity, and how short accounts mirror long accounts
• Maintenance Margin: FINRA minimums (25% long, 30% short) and trigger price formulas
• Special Memorandum Account (SMA): The "high-water mark" line of credit and how buying power works
• Account Activity: Rules for purchases, sales, and withdrawals in restricted vs. unrestricted accounts
• Other Margin Accounts: Pattern day trading ($25,000 minimum) and portfolio margin
• Interest and Costs: How margin loan interest affects the account over time

Why This Matters

Margin questions appear throughout the Series 7, not just in Function 4. You need to calculate equity, identify maintenance call trigger prices, and understand SMA mechanics. The formulas are straightforward once you see the pattern: long accounts use debit balances, short accounts use credit balances, and the math mirrors itself. Once you have these calculations down, you can pick up several exam points with confidence.

Let's start with the requirements for opening and maintaining a margin account.