Maintenance Margin

Maintenance Margin vs. Initial Margin: What is the Difference?

There are two types of margins necessary for leveraged trading.

• Initial Margin: Often called the deposit margin, the initial margin is the amount needed to open a new position, i.e. the percentage of the purchase price that must be covered by the investor’s own money (~50% of the needed funds for stocks)
• Maintenance Margin: The maintenance margin, to reiterate, is the minimum amount of equity that must be maintained in the margin account post-purchase to keep the position open.

Learn More → Hedge Fund Primer

Illustrative Maintenance Margin Calculation Example

Suppose that an investor wants to purchase 240 shares in a company at $100 per share, but the investor has insufficient funds to purchase all those shares.

By utilizing a margin account, the investor can purchase the entire amount of shares thanks to a loan.

The deposit of a pre-determined percentage of the total trade price must be made along with financing fees, i.e. the starting deposit is the initial margin requirement.

• If we assume that the initial maintenance margin requirement is 50% of the purchase price of the trade, the investor must maintain a balance of half of the purchase amount in the margin account.
• If the maintenance margin is set at 25% of the total value of the securities in a margin account — per FINRA requirements — the investor will be allowed to keep the positions open as long as the equity does not fall below the 25% maintenance margin.

But if the equity declines below the maintenance margin, the investor can be forced to liquidate his/her positions until the threshold is adequately met.

Maintenance Margin Account Value Formula

The formula to calculate the minimum margin account value where the maintenance margin is still met is as follows.

Margin Account Value Calculator

We’ll now move to a modeling exercise, which you can access by filling out the form below.

Excel Template | File Download Form

First Name *

Email *

Submit

By submitting this form, you consent to receive email from Wall Street Prep and agree to our terms of use and privacy policy.

Email provided

Your Download is Ready

Submitting...

Margin Account Value Calculation Example

For example, let’s say that an investor deposits $12,000 into a margin account with $12,000 borrowed as a margin loan – in such a case, $24,000 worth of stocks can be purchased.

If the brokerage’s maintenance margin is 25%, the formula for calculating the account balance that triggers the margin call is as follows:

• Margin Account Value = ($12,000) ÷ (1 – 25%) = $16,000

So if the investor’s margin account dips below $16,000, they would receive a margin call.