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
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, ...
This solution explains margin requirements and maintenance margin.