Debt Dictionary


Investment Dictionary -> Margin

In finance, margin represents the act of borrowing money in order to invest in securities. Margin will expose investors to risk due to the interest payments on the borrowed amount. Margin buying takes place when individuals use securities as collateral to the borrowed money. The cash, used for the investment, represents the difference between the value of the collateral and the amount of the loan. This difference should exceed the minimum margin requirement. In other words, it has to meet all margin requirements. Firstly, the current liquidating margin will be calculated in view of gains and losses from the closing-out of positions. If an individual has a short position, he has to furnish securities. The current liquidating margin represents the buy back sum. On the other hand, a margin from long positions results in calculator credit.

The variation margin stands for additional margin that is required to position an account at a proper lever with regard to the market fluctuations. In other words, the variation margin represents a deposit of additional assets in case that the market displays high degrees of volatility. On its part, the premium margin refers to the sum of money that is necessary to close out a position. The additional margin stands for the possible loss in case of a worst-case scenario.

The initial margin requirement represents the sum of the collateral that is necessary to open a position. The maintenance requirement refers to the amount that is kept in the form of collateral until the position is closed. The maintenance requirement is typically lower than the initial margin requirement. However, reduction of the potential risks may require the placement of the maintenance requirement closer or equal to the initial requirement. A margin call may be issued if the margin is below the minimum margin requirement. Then, the investor will have two options. He has to either increase the margin amount or close the position.

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