Initial margin is the percentage of a stock’s purchase price that an investor must pay with their own money to invest in the stock. Borrowing from stock brokerage firms with minimal initial margin can be risky. The Federal Reserve Board sets the initial margin, but intermediaries can ask for a higher percentage.
When an investor buys investment securities such as stocks and bonds, they often get a partial loan from the brokerage to help them buy more. Initial margin, also called the initial margin requirement, is the percentage of a stock’s purchase price that an investor must pay with their own money to invest in the stock. The margin requirement is the absolute minimum that an investor can deposit into the brokerage account to be eligible to trade on borrowed money from the brokerage. In lieu of cash, an investor can also use other marginable securities, also called exempt securities, to meet the initial margin.
Borrowing from stock brokerage firms with minimal initial margin can be a good way for an investor to get more money into the investment for a higher potential return, but it has its risks. If an investment piles up and becomes worthless, the investor loses all the money he has put into the account and ends up going into debt through the stock brokerage. An investor using an initial margin brokerage loan should ensure that they are not committing more than they can afford in the worst case scenario.
Through a brokerage account, an investor can trade in securities, which are financial investments. Types of securities include stocks, bonds, and common debt assets such as loans. The brokerage account where the investor can trade with money borrowed from the brokerage firm is called a margin account. In finance, a securities firm is a firm that provides a broker who will act as a mediator between the buyer and the seller when negotiating securities. Securities brokers usually specialize in a particular type of security.
In the investment world, the broker acts as the agent for the transaction. An agent is an investor’s designated representative, also called a principal. The agent carries out the transactions on behalf of the principal. In finance, agents do not own any of the principal’s property and must legally do what the investor tells them when it comes to the principal’s money. When signing deals with major clients, agents must legally register as agents of the majors. Agents are required to register their statuses with the exchange in which they work before carrying out any securities trading transactions on that exchange.
The Federal Reserve Board, also known as the fed, sets monetary policy in the United States. This tab sets the initial margin, at a value often around 50 percent of the securities’ total purchase value. For a stock investor, this means that he must put up half the value of the stock he wishes to buy in order to receive the other half of the stock transaction money as a loan from the brokerage house. The value set by the Federal Reserve Board is only a minimum and intermediaries can ask for a higher percentage at their discretion.
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