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 ?
In terms of State Development Loans (SDLs), the RBI said initial margin requirement would be in the range of 2.5 to 6 percent for the same maturity buckets.
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.
BlomInvest head Fadi Osserian said that according to his recollection of meetings with the central bank governor about the subject of margin requirements, Governor Riad Salameh was adamant in insisting on the protection of financial markets investors as a priority.
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.
(23.) In the exchange-traded derivatives market, parties are subject to a margin requirement that provides a safety net for unexpected changes in the solvency of the other party.
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%).
The argument that "low margins make speculation cheap" persuades some observers that low margin requirements lead to greater stock price volatility.
However, the banks were allowed to set higher margin requirements keeping in view other factors.
On the Effectiveness of the Federal Reserves's Margin Requirement. Journal of Finance 37 (June): 783-795.
To satisfy an initial margin requirement of 50 percent, he advances $6300 in cash and borrows another $6300 from his broker, who also requires a 30 percent safety margin.
The proposal would set the minimum margin requirement for security futures at 15 percent of the current market value of each security future.