RegT maintenance rate - 25% or 50%?

Discussion in 'Trading' started by ronaldvanbell, Jan 17, 2010.

  1. Hi,
    it is stated that the RegT maintenance rate is 25%.
    Yet, at the end of the day, the real margin requirement rate (RegT) is 50%, and not 25%.

    why is that?

    " As governed by the Federal Reserve's Regulation T, when a trader buys on margin, key levels must be maintained throughout the life of the trade. First off, a broker cannot extend any credit to accounts with less than $2,000 in cash (or securities). Second, the initial margin of 50% is required for a trade to be entered. Finally, the maintenance margin says that an equity level of at least 25% must be maintained. The investor will be hit with a margin call if the value of securities falls below the maintenance margin."

  2. 1. Reg is limiting how much leverage to start

    2. Reg is requiring a "cushion" in the trade (drop from 50 to 25% equity) so that customer has a bit of tolerance for loss AND broker has a bit of equity cushion to exit before a debit situation develops.

    These rules are to provide a measure of protection to customers against their own foolishness.