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Margin Trading

Student Name

Institution Affiliation

Margin Trading

Instructors Name

Due Date
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Margin Trading

Stock Name Market Price Total Price (One Initial Margin

Round)
Netflix $677.67 $688.50 $338,585
(NFLX)

Initial Margin
It is worth noting that based on the most recent Regulatory oversight T.1, the initial

margin for securities at US brokerage firms would have to be at least 50%. Furthermore, it is

worth noting that foreign exchange and commodity markets investors are permitted to open

trades with far greater leverage (Scott, 2019). The initial margin for NFLX stocks would be

evaluated as shown below;

Number of NFLX shares to be purchased = 1000 shares

Value of each share = $677.17

Total Price = $677.17 * 1000 = $677,170

For a margin account the allowed acquisition of NFLX shares would be that the

investor acquires 1000 NFLX shares at $338,585 which is half of the total price for 1000

NFLX shares. The brokerage organization will therefore cover the remaining half of the

acquired shares. The equity securities function as security for the repayment, and

shareholders make payments for the interest on the loaned amount.

Maintenance Margin
The brokerage firm loans you financing for a percentage of the purchase price

whenever you acquire stocks on margin. Administrators demand an investor to maintain a

maintenance margin, or a certain quantity of shareholders’ equity in your portfolio, to ensure

that the investor can repay the budget deficit.

Margin loan balance (amount borrowed from the brokerage firm) = $338,585

Assuming the minimum margin for maintenance = 30%

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Margin maintenance = 0.3 * 338,585 = $101,575.50

This implies that equity in an investors account should be a minimum of

$101,575.50

Impact of Leverage on the Transaction

Leverage on such a transaction would mean that the equity result should be more

than the maintenance margin (Jones, 2019). If the result is opposite to the requirements, then

the investor will get a margin call asking for additional deposit into the account.
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References

Jones, C. P. (2019). INVESTMENTS : analysis and management. John Wiley.

Scott, G. (2019, August 18). Initial Margin vs. Maintenance Margin: What’s the Difference?

Investopedia. https://www.investopedia.com/ask/answers/033015/what-difference-

between-initial-margin-and-maintenance-margin.asp