They do this to protect themselves from market risk and the risk that certain customers will incur a margin debt that they are unable to pay back.įirms typically determine margin requirements by assessing risk at the security level or at the account level. Most brokerage firms maintain margin requirements that meet or, in many cases, exceed those set forth by regulators. House margin requirementįINRA Rule 4210 requires that you maintain a minimum of 25% equity in your margin account at all times. Margin accounts require a minimum of $2,000 in net worth to establish a long stock position. So if you wanted to buy $10,000 of ABC stock on margin, you would first need to deposit $5,000 or have equity equal to $5,000 in your account.
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Initial margin requirementįor new purchases, the initial Regulation T margin requirement is 50% of the total purchase amount. To purchase securities on margin and continue to hold them in your margin account, you must meet specific margin requirements. In many cases, a brokerage firm's margin policies may be more stringent than those of the regulators. Once your account has been approved for margin, it's subject to the rules of the Federal Reserve Board, the Financial Industry Regulatory Authority (FINRA), and securities exchanges such as the New York Stock Exchange, as well as your own brokerage firm's margin policies. Your broker will review your annual income, net worth, estimated liquid net worth, and possibly your credit history to determine if you have the financial resources to manage a margin account. Therefore, similar to the way you apply for a mortgage, you must first complete a margin account application and be approved. A margin account is essentially a loan made by a brokerage firm to an account owner.
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Trading on margin involves additional risk, so before placing any trades, be sure you understand the requirements and industry regulations that govern margin borrowing.įirst, it's important to understand that margin is a privilege, not a right.