What is the term for the minimum equity that must be maintained in a margin account?

What is the term for the minimum equity that must be maintained in a margin account?

• A. Initial Margin
• B. Maintenance Margin
• C. Equity Minimum
• D. Collateral Margin

Answer: (B)

The term for the minimum equity that must be maintained in a margin account is known as the maintenance margin. This requirement is set by brokerage firms and regulatory authorities to ensure that there is enough equity in the account to cover potential losses. When investors borrow funds from their brokerage to purchase securities, they use their own money as well as the borrowed funds. The maintenance margin acts as a safety buffer; if the equity in the margin account falls below this threshold due to market fluctuations, the investor may be required to deposit additional funds or liquidate some positions to bring the account back up to the required level. This mechanism helps manage risk for both the investor and the brokerage firm involved. The other terms presented do not accurately represent this specific concept. The initial margin refers to the minimum amount an investor must deposit to open a margin account. Equity minimum and collateral margin are not standard terms used in the context of margin accounts, which makes maintenance margin the correct choice in this scenario.

The term for the minimum equity that must be maintained in a margin account is known as the maintenance margin. This requirement is set by brokerage firms and regulatory authorities to ensure that there is enough equity in the account to cover potential losses.

When investors borrow funds from their brokerage to purchase securities, they use their own money as well as the borrowed funds. The maintenance margin acts as a safety buffer; if the equity in the margin account falls below this threshold due to market fluctuations, the investor may be required to deposit additional funds or liquidate some positions to bring the account back up to the required level. This mechanism helps manage risk for both the investor and the brokerage firm involved.

The other terms presented do not accurately represent this specific concept. The initial margin refers to the minimum amount an investor must deposit to open a margin account. Equity minimum and collateral margin are not standard terms used in the context of margin accounts, which makes maintenance margin the correct choice in this scenario.