Definition of Initial margin:
To open a margin account at a brokerage firm, an account holder first needs to post a certain amount of cash, securities or other collateral, known as the initial margin requirement. A margin account encourages investors, traders, and other market participants to use leverage to purchase securities with a total value that's greater than the available cash balance in the account. A margin account is essentially a line of credit in which interest is charged on the outstanding margin balance.
The minimum account balance required before an investor will be approved to buy or sell a futures contract. Compare to Maintenance Margin. See Margin.
Initial margin is the percentage of the purchase price of a security that must be covered by cash or collateral when using a margin account. The current initial margin requirement set by the Federal Reserve Board’s Regulation T is 50%. However, this regulation is only a minimum requirement, where equity brokerage firms may set their initial margin requirement higher than 50%. .
How to use Initial margin in a sentence?
- Initial margin is the percent of a purchase price that must be paid with cash when using a margin account. .
- Fed regulations currently require that initial margin is set at a minimum of 50% of a security's purchase price. But exchanges can set initial margin requirements higher than the Fed minimum.
- Initial margin requirements are different from maintenance margin requirements, which is the percent of equity that must be maintained going forward.
Meaning of Initial margin & Initial margin Definition