margin requirement


Also found in: Financial, Acronyms.

margin requirement,

that part of a security's price that a buyer must pay for in cash. The balance of the price is met by the broker, who, in effect, is supplying a client with a loan. The smaller the margin, the greater the inducement to speculation. Low margin requirements were considered an important cause of the 1929 collapse of the American stock market. In 1934, the Securities Exchange Act gave the Federal Reserve Board the power to regulate margin requirements. The amount has been reset at various times, but in recent years, the Federal Reserve has instituted a 50% margin requirement with a $2,000 minimum.
References in periodicals archive ?
You could buy a futures contract by putting up $4,000 per bitcoin, based on a 40% margin requirement, and "own" the profits if bitcoin rises.
He pointed to a recent survey of 43 treasurers and CFOs conducted by the Coalition for Derivatives End-Users in which 91% of respondents said a margin requirement would cause them to alter their hedging strategies.
For the sake of sustaining economic growth - and giving people a chance to spend on something other than gasoline - it may be time for those exchanges to boost those margin requirements some more.
Hsieh and Miller (1990) examined price volatility before and after changes in margin requirement and dispute the findings of Hardouvelis (1990).
However, the minimum maintenance margin requirement for the account is 25%, meaning that the customer's equity must not fall below $15,000 ($60,000 market value multiplied by 25%).
However, the banks were allowed to set higher margin requirements keeping in view other factors.
There were only nine changes in the dollar amount of the margin requirement over that period, but if margin is expressed as a percentage of the contract value, then the effective margin requirement changes daily.
If the margin requirement is increased, then margin trading becomes more costly for all participants and thus some investors will exit the market.
Yet when the act was passed into law in July 2010, a margin requirement pertaining to swaps involving so-called "swap dealers" (SDs) and "major swap participants" (MSPs) was ambiguously worded, and some regulators are now proposing to impose margin on end users despite congressional intent.
Furthermore, the 25% cash margin requirement, which had previously served as a deterrent, was altered to allow a mix of cash and shares to be deposited as margin instead.
The SECP will now prescribe reduced minimum cash margin requirement while allowing a certain portion of the equity participation to be acceptable in shares of selected companies with necessary haircut for improved risk management.
Investors also are watching for potential gold margin requirement hikes from the CME Group, after the Shanghai Gold Exchange raised margins on some of its gold forward contracts twice this month.