Author: finxl79

4. Equity Calculation: o The equity in your margin account is: Equity=Current Value of Investments−Loan Amount=15,000−10,000=5,000\text{Equity} = \text{Current Value of Investments} - \text{Loan Amount} = 15,000 - 10,000 = 5,000Equity=Current Value of Investments−Loan... Read More

2. Maintenance Margin: o Let’s assume the broker requires a 30% maintenance margin (this is the minimum amount of equity you need to maintain in the account). 3. Stock Price Drops: o The price of the stock... Read More

Let’s go through an example to illustrate how these formulas work. 1. Initial Investment: o You invest $10,000 in a stock using a margin account with a 50% initial margin. o You borrow $10,000 from the... Read More

4. Margin Call Trigger Point: A margin call will occur when your equity falls below the required equity as per the maintenance margin. You can calculate the point at which a margin... Read More

3. Maintenance Margin Formula (This tells you the minimum equity required to avoid a margin call): Required Equity=Current Value of Investments×Maintenance Margin Percentage\text{Required Equity} = \text{Current Value of Investments} \times \text{Maintenance Margin... Read More

2. Margin Percentage (This tells you how much of the current value of your investments is your own money): Margin Percentage=EquityCurrent Value of Investments×100\text{Margin Percentage} = \frac{\text{Equity}}{\text{Current Value of Investments}} \times 100Margin... Read More

The Formula for Margin Call: To understand and calculate the risk of a margin call, let’s break down the relevant formulas: 1. Equity Formula: Equity=Current Value of Investments−Loan Amount\text{Equity} = \text{Current Value of Investments}... Read More

Maintenance Margin: The minimum equity you have to maintain in your margin account so that a margin call does not occur. It is generally between 25% and 30% of the... Read More

Key Terms to Know:- Margin Account: A brokerage account in which the broker lends you funds to buy securities. The margin account is a combination of both your own funds (equity)... Read More