Explore BrainMass

Explore BrainMass

    Margin Requirements and Maintenance Margin

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Can you please sxplain how margin requirements can affect the potential return and risk from investing in a stock. What is the maintenance margin?

    © BrainMass Inc. brainmass.com June 3, 2020, 10:55 pm ad1c9bdddf
    https://brainmass.com/business/finance/margin-requirements-maintenance-margin-256040

    Solution Preview

    When an investor buys a stock by borrowing some part of the purchase price, the investor has "traded on margin." This margin is a debt collateralized by the stock purchased using it. As with any debt, if the value of the collateral (i.e., the price of the stock) drops below a certain threshold, the lender can require that the borrower either pay down the loan or increase the amount of collateral posted; this is called a "margin call." Thus, the most pressing risk to the investor using margin is that the price of the stock will drop, ...

    Solution Summary

    This solution explains margin requirements and maintenance margin.

    $2.19

    ADVERTISEMENT