Example of Buying Stock on Margin| TradeStation

Example of Buying Stock on Margin

May 14, 2020

A customer deposits $30,000 in their margin account. The initial margin requirement for trading stocks is 50%, which doubles the buying power in the account to $60,000. Remember the maintenance margin requirement is 25% which means the account value may not dip below 25% of the value of the securities.

Buying on margin
A customer with $30,000 in their margin account buys 500 shares of a stock trading at $100 per share. The value of this transaction is $50,000 (500 shares x $100). The customer must borrow $25,000 from the broker to make this purchase and must also put up $25,000 cash in their account as the initial margin. This leaves the customer with $5,000 in cash or $10,000 is Buying Power.

For this example, the maintenance margin is calculated by taking the amount borrowed; $25,000, and dividing that by .75. That calculates to $33,333 which is the minimum value of cash and securities that must be maintained in the account to avoid a margin call. Another way of looking at this is that the stock purchased for $100 per share must stay above $67 per share to avoid a margin call ($33,000 / 500).

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