Customer Accounts – Stock Price Changes and Margin Requirements

• By Blogger
• 15 October, 2013
• 1 Comment

Effect on Margin Account from a Stock Appreciation Returning to the example, say the UVW stock appreciated and closed yesterday at $50:

As illustrated above, the long market value changes, but it is the equity alone – not the loan value – that changes with it. The brokerage is acting strictly as a lender here and does not stand to gain if the stock price goes up, nor will it lose if the price goes down.
As a result, your client now has excess equity, defined as the total value of cash and securities in a margin account, less margin debt:

Your client can withdraw this excess equity, leave it in the account to increase buying power, or use it immediately to buy more securities. The buying power of deposited securities, then, is $1,000 ($500 excess equity divided by Reg T’s 50% margin requirement). That is, your client can buy $1,000 in that account without triggering a restriction under Reg T.
Effect on Margin Account from a Stock Depreciation Let’s see what would happen if the stock declined by $10 per share instead

In this instance, the account would be restricted, meaning the debit balance exceeds Reg T requirements. Reg T does not mandate that your client make a cash deposit in this event; however, it does require him to deposit at least 50% of the purchase price of any more securities he would like to buy. In fact, the 50% margin requirement is an initial requirement – the maintenance requirement is 25% – so the portfolio would have to decline by half before a margin call would be made.