Beginners’ Trading Guide: Maintenance Margin
Beginners must master several trading principles and phrases. One crucial word is maintenance margin. This post will discuss maintenance margins and why traders must pay attention to them.
Maintenance margin?
Maintenance margin is the minimum money a trader must retain in their account to keep positions open. Brokers need traders to have adequate cash to offset losses.
Open positions may lose money while trading. The maintenance margin protects traders from losses by ensuring they have adequate equity. Traders may get a margin call from their broker if their account balance drops below the maintenance margin threshold.
How Does Maintenance Margin Work?
Say you wish to trade with a broker-set margin requirement. Your broker may ask 30% maintenance margin for a deal. Your equity must be at least 30% of the transaction value.
If your deal goes wrong and your account balance drops below 30% maintenance margin, a margin call is issued. The margin call compels you to deposit additional money to recover your account. If you fail to meet the margin call, your broker may close your open positions until the account balance meets maintenance margin.
Why is Maintenance Margin Key?
Traders and brokers need the maintenance margin to avoid losses. Brokers need a minimum account equity to guarantee traders have adequate cash to cover losses and meet market responsibilities.
Without the maintenance margin, traders might borrow cash and incur large losses they cannot pay. They may default, putting their broker at danger.
Conclusion
Beginners must comprehend maintenance margin and its importance in trading. Maintaining margin levels helps traders avoid margin calls and keep their holdings open. Manage risk and check your account balance to ensure you have adequate equity to fulfill your broker’s maintenance margin needs.
Remember, trading is risky, so educate yourself and get expert advice before investing.
References and sources:
1. Investopedia: https://www.investopedia.com/terms/m/maintenancemargin.asp
2. TD Ameritrade: https://tickertape.tdameritrade.com/trading/maintenance-margin-15605#:~:text=Maintenance%20margin%20is%20the%20minimum,open%20and%20avoid%20margin%20calls.