Margin maintenance question??

Question

Say you buy 100 shares of a stock at $50 on 60% maintenance. A month later, the stock goes up to $60 a share. Originally, you fronted $3000 and put $2000 on margin. Now that the stock is worth more, does your maintenance margin go up? I know if it delcines you get a mrgin call to put in more cash, but how about the reverse? Thanks in advance.

Answer 1

u said 60% on margin u had 100 share @50$.....share went to 60$ it means u earned 1000$.....so the margin u have to maintain is 3600$ and u got additional 400$ to do other thing...

Answer 2

<<<Say you buy 100 shares of a stock at $50 on 60% maintenance. A month later, the stock goes up to $60 a share. Originally, you fronted $3000 and put $2000 on margin.>>>

Assuming the portfolio did not include any other assets, anyone who did that was very foolish since he used all his avaiable margin and would get a margin call on any decline in the price of the stock.

<<<Now that the stock is worth more, does your maintenance margin go up?>>>

The word "margin" is a little tricky because it is used to indicate different things depending on the context.

Sometimes it is used as shorthand for "margin debt" or the amount you borrowed. Since you did not borrow any more money in that context your margin did not go up.

Sometimes it is used as shorthand for "margin required" or the amount you must have in marginable assets that can be used for collateral. In that context your margin did go up from $3,000 to $3,600.

Sometimes it is used as shorthand for the amount of margin, or collateral, available based on the assets in your account. In that context your margin did go up from $2,000 to $2,400.

<<<I know if it delcines you get a mrgin call to put in more cash, but how about the reverse?>>>

That will not cause a margin call. In this example, the loan remained at $2,000 and the amount that could be borrowed increased from $2,000 to $2,400. As a result the account now has a $400 in unused available margin (collateral) that it did not have before the stock price increased.

By the way, if you do get a margin call you can resolve it in more than one way. Adding cash to your account is one way. Another way is to sell some assets and use the proceeds to pay part or all of the loan. For example, if the stock dropped to $40 you could sell 50 shares and use the $2,000 you received from selling the shares to pay off the margin debt.