A margin account lets an investor borrow money to use for trading.
You have $100,000 in an account but want to buy $150,000 worth of shares in Better Win Inc. You can use margin to make up the additional $50,000.
Margin works like a loan. You pay interest on the amount you borrow. The stock purchased in the transaction becomes the collateral. If needed, your brokerage firm (the party loaning you the margin money) will make a margin call...they'll force you to sell the stock in order to pay back the loan if the transaction starts to go bad.
There are rules controlling margin transactions. Maintenance margin represents one of those guidelines. The Federal Reserve, one of the key U.S. financial regulators, has what's called Regulation T, dictating the requirements related to margin transactions.
The maintenance margin part states that you have to hold a minimum amount in an account involved in margin trading. The Fed requires 25%, but individual companies might set their barrier above that level.
The situation comes into play if the stock you purchase goes down in value. You buy $150,000 worth of Better Win Inc. at $15 a share (meaning you buy 10,000 shares). Pretty soon it falls to $10...your holdings drop from $150,000 to $100,000. Remember: you borrowed $50,000 to make the purchase. Your equity in the holdings is now just 50%. You hold $50,000 worth, and $50,000 worth is earmarked for a potential margin call. The stock falls again, this time to $6.60. Your holdings are now worth $66,000. You owe $50,000 and have $16,000 in equity; your equity represents about 24% of the total value of the holdings in your account, below the 25% barrier. Your broker makes a margin call. They liquidate your stock, take their $50,000 (plus whatever interest you owe) and leave you whatever little is left.
So. Much. Winning.
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Finance: What is Accrued Interest?42 Views
Finance allah shmoop What is a crude interest A crude
interest would be an investment holding in oil Black crude
texas t remember jed boy Howdy coming Listen to a
story about a man named about that Alright all good
but that's not what a crude interest is at all
while street never sleeps right So even though a given
bond might pay forty bucks twice a year what happens
if you buy the bond midway through a semester period
Like let's say this particular bond has a coupon paying
eight percent a year So on a thousand dollars a
principle this bond pays eighty bucks a year in the
form of interest or forty bucks twice a year paid
on june thirtieth in december thirty first Well think about
the number's here on a monthly basis each month that
bond creeps closer to its next interest payment and over
the course of a year there are twelve creeps Different
creeps each month that goes by the bonds creep further
into the eighty dollars a year or eighty dollars per
twelve months or eight twelves of a bond payment each
month Well at eighty bucks a year despond pay six
Dollars and sixty seven cents a month in interest Yeah
we got the math there Yeah So let's say you
sell it halfway into its period Presumably the market price
would reflect the accrued interest on the bond or three
months worth of interest or three times that six sixty
seven figure or yes twenty bucks And that makes sense
right You've held that bond a quarter a quarter of
a year a quarter of a year's interest of eighty
boxes one fourth of eighty or yep twenty So yeah
the math works What do you know So the price
of the bond would creep upward to reflect that accrued
interest That is if you sold it on the exact
end of the quarter that thousand dollar bond which was
conveniently selling it exactly part The end of the last
payment Well that bond would likely sell in the market
place for about a thousand twenty dollars The buyer would
get a check for forty bucks just ninety days later
from the a company that issued the bond And well
they can take that forty dollars and reinvested in crude
oil How about that Now you've made old jed very
proud So come and listen to a story about a
man named shmoop Poor rests A writer barely kept his
family fed and one day there was a site of 00:02:18.46 --> [endTime] web and well stuff happens
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