Quick Answer
A margin account lets a customer borrow from a broker-dealer against securities held as collateral. Regulation T generally requires 50% initial margin for marginable equity securities, while Financial Industry Regulatory Authority maintenance requirements set the minimum equity that must remain after purchase. Requirements differ for long, short, and non-margin-eligible positions.
A margin transaction has two separate equity tests: one at purchase and one after the position is open.
Margin Account Basics
- Margin account: A brokerage account in which a customer may borrow funds from the broker-dealer, using account securities as collateral.
- Initial margin: Customer equity required when purchasing securities on margin. Regulation T generally requires 50% initial margin for marginable equity securities.
- Maintenance margin: Minimum equity that must remain after purchase under Financial Industry Regulatory Authority (FINRA) margin rules.
- Margin call: A demand for additional funds or eligible securities when account equity falls below an applicable requirement.
Initial margin → establishes the position. Maintenance margin → measures whether the open position still has enough equity.
Initial and Maintenance Requirements
| Position or security | Initial-margin treatment | Minimum maintenance requirement |
|---|---|---|
| Long marginable equity security | Generally 50% under Regulation T | 25% of current market value |
| Short equity security priced at $5 per share or more | Generally 50% under Regulation T | $5 per share, or 30% of current market value, whichever is greater |
| Short equity security priced below $5 per share | Generally 50% under Regulation T | $2.50 per share, or 100% of current market value, whichever is greater |
| Non-margin-eligible equity security, long | 100% payment required | 100% of current market value |
- Requirements vary by security and by whether the position is long or short.
- A firm may impose a requirement more stringent than the applicable federal or FINRA minimum.
Think of it this way: Initial margin is the down payment for opening the position. Maintenance margin is the equity floor that applies while the position remains open.
Exam Tip: Gotchas
Initial margin answers the purchase question. Maintenance margin answers the ongoing-equity question. Do not use the 50% initial-margin figure to answer a question about equity required after a position has been established.