Margin Buying Power Scenarios

Scenario 1

You have $10,000 in cash on your account and you wish to purchase stock ABC on margin. If stock ABC has a 50% initial margin requirement, then your margin buying power is as follows:

$10,000 / 50% = $20,000 → Your Margin Buying Power

Scenario 2

You have $10,000 worth of stock ABC bought using $8,000 in cash and $2,000 on margin. Now if you would like to buy stock XYZ (regular 50% initial margin requirement) on margin, how much is your margin buying power?

Answer:

Although the initial margin requirement of stock ABC is 50%, the maintenance margin requirement of ABC is 30%. $10,000 * (100%-30%) = $7,000 → the maximum amount you are eligible to borrow.

$7,000 - $2,000 = $5,000 → Now you have used $2,000 of the available margin, your current available margin becomes $5,000 which is also your cash buying power.

$5,000 / 50% = $10,000 → the margin buying power for purchasing stock XYZ.

Scenario 3

You have $10,000 worth of stock ABC bought using $8,000 in cash and $2,000 on margin. Now if you would like to buy stock XXX (75% margin requirement) on margin, how much is your margin buying power?

Answer:

Although the initial margin requirement of stock ABC is 50%, the maintenance margin requirement of ABC is 30%.

$10,000 * (100%-30%) = $7,000 → the maximum amount you are eligible to borrow.

$7,000 - $2,000 = $5,000 → Now you have used $2,000 of the available margin, your current available margin becomes $5,000 which is also your cash buying power.

$5,000 / 75% = $6,666.6 → the margin buying power for purchasing stock XXX.