Maintenance Margin is the minimum equity an investor must hold in the margin account after the purchase has been made; it is currently set at 25% of the total value of the securities in a margin account as per Financial Industry Regulatory Authority (FINRA) requirements. Main reason for setting this minimum was to protect investors from being caught without sufficient capital to meet calls or have their trade liquidated during market turmoil. Maintenance margin is usually subtracted automatically when your brokerage firm makes a buy or sell transaction on your behalf via your broker's clearinghouse. Transfers are processed using the same method used to transfer cash into and out of your account.Maintenance margin is the amount of money a broker must hold in his or her margin account as a cushion against sharp declines in stock prices. In most brokerage accounts, the maintenance margin, also called "required margins," is set at 25% of the total value of your securities portfolio. This means that if you have $100,000 worth of stocks and trade only $50,000 via margin, the remaining $75,000 must be held as cash in your broker's margin account. Your broker may adjust this amount up or down depending on market volatility and other factors.The maintenance margin is one of the important factors that defines how much risk an investor is taking. The main reason for buying securities in a margin account is to secure the financial benefits by buying through investing from your own money and/or money borrowed from others. The main purpose of maintaining a margin account with respect to selling securities short is to safeguard against losses due to defaults or other unforeseen circumstances.A margin account has two components: -1- brokerage;2- maintenance if you choose.Brokerage refers to fees, commissions or other charges (e.g., for transferring and maintaining ownership of securities), while maintenance margin refers to funds held in reserves to cover losses if the securities have declined materially in value due to default, bankruptcy or drastic change in market conditions (e.g. heavy trading).The fact, however, is that maintaining such a high level of equity would reduce your returns due to the additional amount you are required to pay from your own money, which can lead to unnecessary losses.
