Marginal lending is an important and useful form of financing that lends against the security of an asset portfolio. This article contains a brief summary of a typical marginal lending structure, risks to borrowers and lenders participating in margina loans, steps that can be taken to minimize these risks, and some legal considerations applicable to lenders offering margina loans as part of their services. The initial margin requirement is the amount of guarantees needed to open a position. Then, the necessary security until the position closes is the maintenance requirement. Maintenance requirements are the minimum amount of security required to keep the position open and are generally below the original requirement. This allows the price to move against the margin without forcing a margin call immediately after the initial transaction. If the total value of the security is covered by the maintenance margin requirement, the facility owner must mortgage additional collateral to restore its overall balance or exceed the initial margin requirement. However, for instruments considered to be particularly risky, regulators, the stock exchange or the broker may set the maintenance burden above normal or equal to the initial risk reduction requirement relative to the risk accepted by the trader. For futures and derivatives clearing accounts, futures traders can calculate a premium or margin multiplier for trading requirements. This is usually an additional 10% to 25%. Jane sells a share of shares she does not own for $100 and puts $20 of her own money as collateral, which gives $120 of money to her account. Net worth (the amount of cash lowered in the share price) is $20.
The broker wants a minimum margin of $10. The broker may review the value of collateral (margin) at any time after the risk assessment, for example. B based on market factors. If this results in the market value of the security of a margina account being covered by the revised margin, the broker or exchange immediately issues a „margin call“ requiring the investor to reconcile the margin account.