How to Calculate Margin Requirement
A stock brokerage margin account allows you to buy stocks "on the margin" or borrow part of the purchase price from the broker. The initial margin requirement is 50 percent. You must pay half the purchase price of the stock and can borrow the other half. If the value of the stock declines, your equity in the stock will become less than half the value. The maintenance margin set by the Federal Reserve is 25 percent of your margin account.
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Instructions
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1
Look up you margin account total value and the amount of the outstanding margin loan. These items will be listed on the online summary of your account.
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2
Subtract the amount of the margin loan from the total value of your margin account. The result is your investor equity in the account. For example if you have investments worth $60,000 in your account and the margin loan balance is $46,000, your equity is the difference or $14,000. If you sold all of the investments and paid off the margin loan, this is the amount that would be left as your money.
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3
Multiply your total account balance times 25 percent or 0.25. The 25 percent level is the maintenance margin of equity investors are required to have in their accounts. Using the example, $60,000 times 25 percent is $15,000.
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4
Compare your investor equity from Step 2 with the maintenance equity required calculated in Step 3. If your equity is less than the maintenance you will need to send your broker enough money to increase your equity and reduce the margin loan balance. In this case your account value has dropped below the maintenance margin and you would need to send $1,000 to your broker or sell some investments.
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Tips & Warnings
Margin account rules have an absolute minimum investor equity of $2,000. You will be required to deposit at least this amount to open a margin account and you must always have that level of equity or higher.
The amount of margin debt stays the same whether your stocks go up in value or down. Falling stock prices can reduce your equity in a hurry.
Multiply your margin debt balance times two to determine the original value of your investments. You can quickly see how much money you have made or lost.
If your margin account falls below the maintenance margin level the broker can sell any or all of your investments at their discretion to pay the margin loan. The broker will issue a margin call for more money to be deposited, however, the brokerage firm can still sell your investments if they continue to decline.
Brokers have the right to raise the margin limits on accounts and individual stocks.
