Question of the Week

Margin accounts are established to allow investors the ability to use leverage with their investments. The initial margin, which is set by the Federal Reserve is what percentage?

a) 50%
b) 10%
c) 25%
d) 30%

Answer:

The correct answer is a):

A margin account allows you to buy additional securities by leveraging the value of your eligible shares. The initial margin is 50% which is set by the Federal Reserve. This means that when an investment is made by an investor, half of the funds must be put up by the investor and the other half is borrowed from the broker. The broker (lender) will charge the investor margin interest to compensate for the loan arrangement.