The margin equity rate is a term used by speculators, which represents the amount of their trading capital held at a given time as a margin. Traders would rarely (and unintentionally) hold 100% of their capital as a margin. There is a good chance of losing all their capital at some point. On the other hand, if the margina equity rate is so low that the trader`s capital corresponds to the value of the futures contract itself, they would not benefit from the inherent leverage that is implied in futures trading. A conservative trader could hold a margin rate of 15%, while a more aggressive trader could hold 40%. The maintenance margin requirement uses the above variables to establish a report that investors must comply with in order to keep the account active. Margin Return (ROM) is often used to assess performance, as it represents net income or loss relative to the perceived risk of the exchange, which is reflected in the required margin. ROM can be calculated (realized return) / (initial margin). The annualized ROM is equal to Sometimes, return on Margin will also take into account peripheral fees such as brokerage fees and interest paid on the amount paid. The margin rate is usually based on the broker`s call.
Jane buys a share in a company for $100 with $20 of her own money and $80 lent by her broker. The net worth (the share price decreased from the amount borrowed) is $20. The broker wants a minimum margin of $10. But if your company needs 40% maintenance, you wouldn`t have enough equity. The company would require you to have 4,800 USD of equity (40 percent of 12,000 USD – 4,800 USD). Their equity of $4,000 is less than the company`s maintenance costs of $4,800. As a result, the company can give you a “margin call” to deposit additional equity into your account, since the equity in your account has dropped by $800 below the company`s maintenance costs. Special Margin Requirements – Pattern Day Trader Margin Requirements A margin account should not be used to purchase marginal shares in a pension account, trust or other trust account.