What Is a Maintenance Margin?

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A maintenance margin is the value amount required to be present in accounts used by investors to buy stocks and bonds with bank loans. Find out how banks use maintenance margins to ensure loans are paid with information from a financial consultant in this free video on money management and personal finance.

Part of the Video Series: Money Management & Personal Finance
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Have you borrowed money from your bank or stockbroker to buy more stocks or bonds? Hi this is Roger Groh at Groh Asset. The one thing that's for sure is they're going to want to be paid back. And the way that they ensure that they will be paid back is demand that you maintain a certain amount of value in your account. That level is called maintenance margin. As the value of your stock or bond holdings differs, that percentage won't change but is a floor. As the value of your account declines, if it every declines completely to that floor, that bank or brokerage firm will then close your account, liquidate whatever it is that you have and take their money home so that they're paid back their loan. Now interest rates differ for what you're going to pay on those loan that you borrow from the bank. And it makes great sense to shop carefully and look at what those rates are. Last but not least, it's not the bank that sets the maintenance margin rate, it's the government of the country that you're actually in. US rates are different from the UK, the UK is different from Switzerland, Switzerland is different from Hong Kong. So look carefully depending upon where you live. I'm Roger Groh at Groh Asset and thank you very much for spending time with me.

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