Listen to a Business English Dialogue About Initial margin
Aria: Hi Russell, have you heard of “initial margin” in finance?
Russell: No, I haven’t. What is it?
Aria: Initial margin is the amount of money or collateral that investors must deposit with their broker when they open a margin account to trade securities.
Russell: Oh, I see. How is initial margin different from maintenance margin?
Aria: Unlike initial margin, which is the minimum amount required to open a margin account, maintenance margin is the minimum amount of equity that investors must maintain in their margin account to avoid a margin call.
Russell: That’s good to know. Are there any risks associated with initial margin?
Aria: One risk is that if the value of the securities purchased on margin declines below the initial margin requirement, investors may face a margin call and be required to deposit additional funds or securities to maintain the required margin level.
Russell: I understand. How do investors calculate their initial margin requirement?
Aria: The initial margin requirement is typically calculated as a percentage of the total value of the securities purchased on margin, with the exact percentage determined by regulatory rules and the policies of the brokerage firm.
Russell: Thanks for explaining, Aria. Initial margin seems like an important aspect of margin trading to understand.
Aria: Absolutely, Russell. It’s crucial for investors to be aware of their initial margin requirements and to carefully manage their margin accounts to avoid potential losses and margin calls.