Initial margin is the percentage of a stock’s purchase price that an investor must pay out of their own money to invest in the security. Borrowing from stock brokerage companies with minimal initial margin can be a good way for an investor to get more money in the investment for a higher potential return, but it comes with risks. The Federal Reserve Board sets the initial margin, which often represents approximately 50% of the total purchase value of the securities.
When an investor buys investment securities like stocks and bonds, they will often receive 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 out of his or her own money to invest in the security. The margin requirement is the absolute minimum that an investor can deposit into the brokerage account to be eligible to trade with money borrowed from the brokerage. In lieu of cash, an investor may also use other margined securities, also called exempt securities, to meet the initial margin.
Borrowing from stock brokerage companies with minimal initial margin can be a good way for an investor to get more money in the investment for a higher potential return, but it does come with risks. If an investment vanishes and becomes worthless, the investor loses all the cash he deposited in the account and ends up in debt to the brokerage. An investor using an initial margin brokerage loan must ensure that they do not commit more than they can afford in a worst case scenario.
Through a brokerage account, an investor can trade securities, which are financial investments. Types of securities include stocks, bonds, and pooled debt assets, such as loans. The brokerage account in which the investor can trade money borrowed from the brokerage is called the margin account. In finance, a stock brokerage is a company that supplies a broker who will act as a mediator between the buyer and the seller when trading securities. Securities brokers generally specialize in a particular type of security.
In the world of investments, the broker acts as the agent of the transaction. An agent is a representative appointed by the investor, also called a principal. The agent performs transactions on behalf of the principal. In finance, agents do not own any principal property, and legally they have to do what the investor tells them when it comes to principal money. When signing agreements with clients’ principals, agents must legally register as agents of the principals. Agents are required to register their status with the exchange they work on before conducting any securities transactions on that exchange.
The Federal Reserve Board, also known as the Fed, sets monetary policy in the United States. This board sets the initial margin, at a value that often represents approximately 50 percent of the total purchase value of the securities. For a stock market investor, this means that he must put up half the value of the shares he wishes to buy in order to receive the other half of the money for the stock transaction as a loan from the brokerage. The value set by the Federal Reserve Board is only a minimum, and stockbrokers may request a higher percentage at their discretion.
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