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Margin is money borrowed from a broker for trading purposes. Brokers generally require additional disclosures for opening margin accounts, and charge interest when margin is used. Margin is commonly expressed as a percentage; an account 150% on margin, for example, holds $150 worth of positions for every $100 of actual cash in the account. Maintenance margin, the amount of margin required to hold an existing position, is regulated by the exchange where the asset is listed, and may differ from the initial margin mandated by the Federal Reserve. Margin requirements for holding positions overnight may be greater than margin requirements for opening and closing intraday positions.
Margin calls occur when an account falls below minimum maintenance level of 25% (or higher if so stated in the broker's margin agreement). Brokers will generally give the account holder a short period of time to reduce margin in a manner of their own choosing. If margin has not been sufficiently reduced, the broker will automatically liquidate positions at its own discretion. |
