Confused about Initial & Maintenance margins

[Newby1975]

Hello. I'm a Newby. I'm trying to get my head around a few 'techie' margin terms. So sorry if I sound pretty uninformed!

Initial margin - I think that's like saying for every £1 I borrow via the broker, I put up 50p. Is that right?

Also maintenance margin. Is that like a deposit for renting a property? So if I leave the property in a bad way, the broker still has the deposit i.e. if there's a serious drop in the value of my margin account, they've still got protection?

Sorry if these questions sound EXTREMELY basic.! Just starting out.

Thanks

John N, London

 

[new_trader]

Hello. I'm a Newby. I'm trying to get my head around a few 'techie' margin terms. So sorry if I sound pretty uninformed!

Initial margin - I think that's like saying for every £1 I borrow via the broker, I put up 50p. Is that right?

Also maintenance margin. Is that like a deposit for renting a property? So if I leave the property in a bad way, the broker still has the deposit i.e. if there's a serious drop in the value of my margin account, they've still got protection?

Sorry if these questions sound EXTREMELY basic.! Just starting out.

Thanks

John N, London

• Initial Margin is the margin required to initially OPEN a new position.
• Maintenance Margin is the margin you need to maintain to keep that position open.

As the market price may change after you have opened your position your margin level will be affected. eg/ If you buy a security on margin and the price falls after you have opened it you will be expected to deposit more money into your account to maintain the required margin.

 

[Newby1975]

Thanks New_Trader. I understand that. I think the analogy of the maintenance margin being akin to a property 'deposit' is, then, about right?

 

[new_trader]

Thanks New_Trader. I understand that. I think the analogy of the maintenance margin being akin to a property 'deposit' is, then, about right?

Sort of almost. With property you can losses are limited to your initial deposit, with margin trading you can lose more than your initial deposit.

 

[Newby1975]

Okay, that's clear. Thank you very much.