What is Initial Margin Requirement?
Initial Margin Requirement meaning The minimum amount of equity an investor must have in a brokerage account in order to borrow for short-sell transactions or margin purchases. Failure to meet this minimum requirement prevents selling short or buying on margin. The initial margin requirement has two main purposes: (1) It limits the amount that may be borrowed to finance stock trading; and (2) it protects the broker making the loan by providing collateral to safeguard the loan. The Federal Reserve sets the initial margin requirement in the U.S. In The Stock Market Game, the initial margin requirement is 50% of the borrowed money. The initial margin requirement differs from the maintenance margin requirement. Here is the calculation of initial margin requirement. If the value of shorts is negative, ignore the minus sign.
Initial Margin Requirement = (Value of Longs + Value of Shorts) X 0.50