Understanding the differences between an initial margin and a maintenance margin is a key concept for anyone who decides to trade on margin. Trading on margin is not commonly done in stock trading except by professional investors and institutional traders. However, trading on margin is standard practice in the futures markets and 澳洲幸运5官方开奖结果体彩网:forex (FX) trading. The ability to trade on a relatively low margin, with high leverage, is part of what attracts many speculators to futures and forex trading.

Trading on Margin

When security traders 澳洲幸运5官方开奖结果体彩网:buy on margin, they pay only a portion of the stock price, which is called the margin. They borrow the balance of the stock price from a stockbroker. The stocks the trader has purchased then serve as collateral for the loan. An investor who buys stocks on margin must establish a 澳洲幸运5官方开奖结果体彩网:margin account with their broker, 🤪which allows them🎃 to borrow funds from their broker without paying the full value for each trade.

Trading stocks on margin is most common in 澳洲幸运5官方开奖结果体彩网:short selling. According to Regulation T of the Federal Reserve Board, the initial margin requirement allows traders to borrow up to 50% of the purchase price of equity securities purchased on margin.𒐪 The actual amount will depend upon the broker's requirements and some brokers may require the trader to have more than 5ཧ0% on deposit. 

In futures and forex trading, the margin requirements are much lower—as low as 1% to 5% of the traded contract value. Margins on futures contracts are typically 3% to 12% per contract. The margin posted by a trader represents a good faith deposit that the trader must keep on hand with the broker. This affords the trader a high level of leverage to greatly amplify the effect of pri🔥ce changes in terms of the dollar amount of gain or l𒅌oss in the trader's account.

If the market moves in the trader's favor, this leverage enables the trader to realize significant profits on even small price changes. However, if the market moves against the trader's position, a moderate price shift amplified by the leverage used can lead to losses greater than the trader's margin deposit.

Initial Margin Requirements

The initial margin requirement is the amount a trader must deposit to initiate a trading position. For futures contracts, the 澳洲幸运5官方开奖结果体彩网:clearinghouse sets the initial margin amount. Brokers, however, may require traders to deposit additional funds beyᩚᩚᩚᩚღᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚond the initial margin requirement in order to establish and maintain the account.

Once a futures trading position is established, a trader must maintain a certain balance established by th💯e broker—typically 50% to 75% of the initial margin—to continue holding the position.

Maintenance Margin

In futures trading, if the account falls below the specified 澳洲幸运5官方开奖结果体彩网:maintenance margin level, then the broker sends the trader a 澳洲幸运5官方开奖结果体彩网:margin call. This informs the trader that they must immediately deposit sufficient funds to bring the account back up to the initial margin level. If the trader fails to do s🃏o promptly, the broker will close out the trader's market p𝓰osition.

Example of Initial Marg𝓡in and Maintenance Margin

If the initial margin requirement for trading one gold 澳洲幸运5官方开奖结果体彩网:futures contract is $1,000 and the maintenance margin requirement is💟 $750, then if the balance in the trader's account drops to $725, the trader must deposit an additional $275 to bring the account back to the initial margin level.

Another alternative is for the trader to sell other investments in the portfolio to raise the funds needed to bring the account back to the initial margin level. If the trader fails to respond to the margin call in a timely fashion or does not have the money to bring the account back up to the initial margin, the broker can then 澳洲幸运5官方开奖结果体彩网:liquidate the position. Some brokers may automatic💎ally liquidaꦆte a position once it drops below the maintenance margin level.