Listen to a Business English Dialogue About Maintenance requirement
Larry: Hey Evelyn, do you know what a maintenance requirement is in finance?
Evelyn: No, Larry, I’m not sure. What is it?
Larry: It’s the minimum amount of equity that an investor must maintain in a margin account to keep the account open and continue trading.
Evelyn: Oh, I see. Is the maintenance requirement the same for all margin accounts?
Larry: No, it can vary depending on the broker and the securities held in the account, but it’s usually a percentage of the total value of the securities held on margin.
Evelyn: Got it. What happens if an investor’s equity falls below the maintenance requirement?
Larry: If that happens, the investor may receive a margin call, requiring them to either deposit more funds or sell securities to bring the account back into compliance.
Evelyn: That sounds stressful. Are there any strategies investors can use to avoid falling below the maintenance requirement?
Larry: Yes, investors can monitor their account regularly, use stop-loss orders to limit potential losses, and avoid overleveraging their positions.
Evelyn: Thanks for explaining, Larry. It’s important to understand these requirements before trading on margin.
Larry: Absolutely, Evelyn. Margin trading can amplify both gains and losses, so it’s crucial to be aware of the risks involved.
Evelyn: I appreciate the advice, Larry. I’ll make sure to keep that in mind if I ever consider trading on margin.
Larry: No problem, Evelyn. Feel free to ask if you have any more questions about margin trading or any other financial topics.