Maintenance Margin Calculator - Calculator Academy (2024)

FAQs

How do you calculate maintenance margin? ›

To calculate maintenance margin, divide the amount borrowed per share by the maximum percentage of borrowing allowed.

Once the stock has been purchased, the maintenance margin represents the amount of equity the investor must maintain in the margin account. Regulation T sets the minimum amount at 25 percent, but many brokerage firms will require a higher rate.

Even though FINRA established a minimum of 25% as the maintenance margin, a lot of brokerage firms set their minimum rate at 30% to 40% of the total value of the securities.

For example, if you have $5,000 and would like to purchase stock ABC which has a 50% initial margin requirement, the amount of stock ABC you are eligible to buy on margin is calculated as follows: Buying power * 50% is less than or equal to $5,000. Buying power is less than or equal to $5,000 / 50% = $10,000.

Excess Margin Deposit Example

Assuming a 25% maintenance margin requirement, $12,500 of equity must be kept after opening the account. With $25,000 of equity, there is $12,500 of excess margin above the 25% maintenance margin requirement.

In futures trading, if the account falls below the specified maintenance margin level, then the broker sends the trader a margin call. This informs the trader that they must immediately deposit sufficient funds to bring the account back up to the initial margin level.

Initial margin is the amount required by the exchange to initiate a futures position. While the exchange sets the margin amount, your broker may be required to collect additional funds for deposit. Maintenance margin is the minimum amount that must be maintained at any given time in your account.

You're then required to deposit additional capital into your account up to the maintenance margin level. The funds can be cash or additional securities. If you don't make a deposit, your broker may require you to sell something in order to meet the margin call.

Investors can avoid margin calls by monitoring their equity and keeping enough funds in their account to maintain the value above the required maintenance level.

Your margin maintenance is based on a model that considers certain factors, such as volatility and market liquidity. For example, stocks that are known to be more volatile typically have higher maintenance requirements to ensure you have enough portfolio value to cover the position if it quickly decreases in value.

What does a 25% maintenance requirement mean? ›

The Bottom Line

A house maintenance requirement is the minimum equity an investor must hold in their margin account after making a purchase. Once a security is bought on margin, the requirement kicks in. Regulation T demands that at least 25% of the total market value of the securities be in the account at all times.

For instance, if your business earns $200,000 in revenue and incurs $150,000 in expenses, your net profit is $50,000. Dividing $50,000 by $200,000 gives 0.25, and multiplying by 100 gives you a profit margin percentage of 25%.

Initial margin is the amount of funds required by CME Clearing to initiate a futures position. While CME Clearing sets the margin amount, your broker may be required to collect additional funds for deposit. Maintenance margin is the minimum amount that must be maintained at any given time in your account.

Minimum maintenance for short accounts

The biggest difference is the amount; short accounts must always maintain at least 30% equity (not 25% like long accounts). If equity falls below 30%, the investor or broker-dealer must move to remedy the situation.

For example, if a company sells a product for $100 and it costs $70 to manufacture the product, its margin is $30. The profit margin, stated as a percentage, is 30% (calculated as the margin divided by sales). Profit margin is sales minus the cost of goods sold.

This is important to understand, because brokerage firms require that margin traders maintain a certain percentage of equity in the account as collateral against the purchased securities—typically 30% to 35%, depending on the securities and the brokerage firm.

Accounts under $25,000 in equity will be set to closing-only transactions until a PDT reset is used and or the account closes above $25,000 in equity. Please note that any margin held in futures and or crypto positions will not count towards an account's equity.