Next video:
Loading the player...

Initial margin is the percentage of a stock’s price an investor must have in his account to buy that stock on margin.

A margin account allows investors to borrow money to buy securities. Buying on margin gives investors financial leverage. It enables them to increase their potential gain, because they can buy more stock, but on the other hand, it also increases the risk of potential loss they can suffer.

Regulation T sets initial margin requirements at a minimum level of 50%, though some brokerages require more. If Bob the investor wanted to buy $20,000 worth of ABC Corporation stock, his initial margin would be $10,000, which would come from his own cash or marginable securities. He would borrow the other $10,000 from his brokerage to complete the transaction.

If Bob had less than $10,000 in his account, he could not complete the transaction.

Related Articles
  1. Trading

    Margin Trading

    Find out what margin is, how margin calls work, the advantages of leverage and why using margin can be risky.
  2. Investing

    Buying on Margin

    When an investor buys on margin, he or she pays a portion of the stock price – called the margin -- and borrows the rest from a stockbroker. The purchased stocks then serve as collateral for ...
  3. Financial Advisor

    Margin Investing Gets A Bad Rap, But For The Thrill-Seeker, It's Worth It

    Investing on margin can be profitable but it's a risky play that needs care.
Hot Definitions
  1. Time In Force

    Time in force is a special instruction used when placing a trade to indicate how long an order will remain active before ...
  2. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
  3. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
  4. Inverse Transaction

    A transaction that can cancel out a forward contract that has the same value date.
  5. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  6. Solvency

    The ability of a company to meet its long-term financial obligations. Solvency is essential to staying in business, but a ...
Trading Center