Example of Buying Stock on Margin

May 14, 2020

A customer deposits $30,000 in their margin account. The initial margin requirement for trading stocks is 50%, which doubles the buying power in the account to $60,000. Remember the maintenance margin requirement is 25% which means the account value may not dip below 25% of the value of the securities.

Buying on margin
A customer with $30,000 in their margin account buys 500 shares of a stock trading at $100 per share. The value of this transaction is $50,000 (500 shares x $100). The customer must borrow $25,000 from the broker to make this purchase and must also put up $25,000 cash in their account as the initial margin. This leaves the customer with $5,000 in cash or $10,000 is Buying Power.

For this example, the maintenance margin is calculated by taking the amount borrowed; $25,000, and dividing that by .75. That calculates to $33,333 which is the minimum value of cash and securities that must be maintained in the account to avoid a margin call. Another way of looking at this is that the stock purchased for $100 per share must stay above $67 per share to avoid a margin call ($33,000 / 500).

Discover the advantages of trading Stocks & ETFs with TradeStation

See also

Introduction to Day Trading

Introduction to Day Trading

Market BasicsStocks & ETFsDay trading refers to buying then selling or selling short then buying the same security on the same day. Just purchasing a security, without selling it later that same day, would not be considered a day trade. Does the rule...

read more
Introduction to Day Trading

Day Trading Requirements

Market BasicsStocks & ETFsThe rules adopt the term “pattern day trader,” which includes any margin customer that day trades (buys then sells or sells short then buys the same security on the same day) four or more times in five business days,...

read more
Introduction to Day Trading

Why Day Trading Margin Requirements are Important

Market BasicsStocks & ETFsThe primary purpose of the day-trading margin rules is to require that certain levels of equity be deposited and maintained in day-trading accounts, and that these levels be sufficient to support the risks associated with...

read more