Initial Margin Requirement
Initial margin requirement is the amount of money that must be deposited in a margin account before a trader can buy or sell securities. This is a form of collateral that is used to protect the broker from losses that may occur due to the trader’s trading activities. The initial margin requirement is set by the Federal Reserve Board and is typically expressed as a percentage of the total value of the securities being traded.
History of Initial Margin Requirement
The initial margin requirement was first introduced in the United States in 1974 as part of the Securities Exchange Act of 1934. The purpose of the requirement was to protect investors from excessive risk taking by traders. The initial margin requirement was set at 50% of the total value of the securities being traded. This requirement was later lowered to 25% in 1982.
In the wake of the financial crisis of 2008, the Federal Reserve Board increased the initial margin requirement to 50% in order to reduce the risk of excessive leverage and to protect investors from losses due to market volatility. The requirement was further increased to 100% in 2011.
Comparison Table
| Year | Initial Margin Requirement |
|---|---|
| 1974 | 50% |
| 1982 | 25% |
| 2008 | 50% |
| 2011 | 100% |
Summary
Initial margin requirement is a form of collateral that is used to protect the broker from losses that may occur due to the trader’s trading activities. The initial margin requirement was first introduced in the United States in 1974 and has since been adjusted several times in order to reduce the risk of excessive leverage and to protect investors from losses due to market volatility. For more information about initial margin requirement, please visit the Federal Reserve Board website or consult a financial advisor.
See Also
- Margin Account
- Margin Call
- Maintenance Margin
- Leverage
- Risk Management
- Portfolio Margin
- Options Margin
- Day Trading
- Short Selling
- Margin Interest
