What is an 'Excess Margin Deposit'

An excess margin deposit is cash or equity in a margin trading account beyond what is required to open or maintain the account. Regulation T of the Federal Reserve Board governs initial margin, while the Financial Industry Regulatory Authority (FINRA) sets rules on margin maintenance requirements. The value in a margin trading account that exceeds regulatory requirements is known as excess margin deposit.

BREAKING DOWN 'Excess Margin Deposit'

Regulation T allows investors to borrow up to 50% of the purchase price of a stock that is eligible to be purchased on margin. (Not all stocks are eligible.) The 50% is known as the initial margin, but it is at the discretion of the individual brokerage firm to decide the percentage amount; for instance, it may allow only an investor to borrow only 30% of the purchase price. After a stock is purchased on margin, FINRA imposes requirements on margin accounts that they hold a minimum of 25% of the market value of securities. Again, a brokerage firm may set its own policy with respect to the minimum percentage as long as it is over FINRA's 25% threshold.

Illustration of Excess Margin Deposit

Suppose an investor buys $20,000 worth of securities by borrowing $10,000 from the brokerage and depositing $10,000 in cash or securities in the margin account. If the market value of the securities falls to $18,000, the equity in the margin account will decline to $8,000 ($18,000 minus $10,000). If the investor's brokerage firm has a maintenance requirement of 25%, the investor's account must have at least $4,500 of equity (25% of $18,000). Since $8,000 of equity is greater than the maintenance figure of $4,500, the investor's margin account meets requirements. The excess margin deposit, in this case, is $3,500.

  1. Minimum Margin

    Minimum margin is the initial amount required to be deposited ...
  2. House Maintenance Requirement

    The house maintenance requirement is the minimum margin account ...
  3. Buying On Margin

    Buying on margin is the purchase of an asset by paying the margin ...
  4. House Call

    A house call is a margin call by the brokerage firm for a customer ...
  5. Buying Power

    Buying power is the money an investor has available to buy securities ...
  6. Remargining

    Remargining is the process of depositing additional cash or securities ...
Related Articles
  1. Trading

    A Guide to Day Trading on Margin

    Buying on margin is a good option if you don't have the cash to day trade.
  2. Personal Finance

    Where to Put Your Cash: Call Deposit vs. Time Deposit Accounts

    Time deposit accounts and call deposit accounts allow customers to earn higher interest in exchange for less access to their cash.
  3. Insights

    Margin Debt Hits all-time High: Time to Panic?

    Margin debt and equity prices: a case of the chicken or the egg?
  4. Investing

    How to Trade Futures Contracts

    Futures is short for Futures Contracts, which are contracts between a buyer and seller of an asset who agree to exchange goods and money at a future date, but at a price and quantity determined ...
  5. Managing Wealth

    What's a Good Profit Margin for a Mature Business?

    How to determine if the amount you clear dovetails with the competition.
  6. Investing

    Best 2016 IRA Promotions (ETFC, BAC)

    Here are some of the best IRA promotions of 2016, with significant bonuses for large deposits.
  1. What is a margin account?

    A margin account is an account offered by brokerage firms that allows investors to borrow money to buy securities. Read Answer >>
  2. How do initial margin and maintenance margin differ?

    Learn the difference between initial and maintenance margin requirements. Find out how trading on low margin with high leverage ... Read Answer >>
  3. What are the minimum margin requirements for a short sale account?

    In a short sale transaction, the investor borrows shares and sells them on the market in the hope that the share price will ... Read Answer >>
  4. What's the difference between a cash account and a margin account?

    All transactions in a cash account must be made with available cash or long positions; a margin account allows investors ... Read Answer >>
  5. Profit margin versus operating margin: What's the difference?

    There are some distinctions between profit margin and operating margin. Both measure efficiency of a firm, but one takes ... Read Answer >>
Trading Center