What is Initial margin?
Under Regulation T, the required margin for a margin equity security, such as a stock listed on a US national securities exchange, is 50% of current market value, or a higher percentage set by the regulator where the trade occurs, so you may borrow up to half. For a short sale of a nonexempted equity security, the Reg T requirement is 150% of the current market value of the stock sold short; the sale proceeds held in the account count toward it, so the extra margin is 50%. Initial margin applies when the position is opened; afterwards the maintenance requirement decides when a margin call starts. These are US rules, firms may require more, and other markets differ.
Also called initial margin requirement, Regulation T margin, Reg T requirement
Maya's purchase at the Reg T limit (F5 case, illustrative)
- Stock bought: 200 shares at $100
- $20,000
- Paid with own money
- $10,000
- Borrowed from the broker
- $10,000
- Own money as a share of the purchase
- 50%The most that can be borrowed for margin equity securities under Reg T (US).
Only the starting line
Meeting initial margin says nothing about later: after a fall, the maintenance requirement decides when a margin call starts.