Just call us Bond. Amortized bond.
Over 700 finance terms, Shmooped to perfection.
In margin transactions, you borrow money against your investments in order to buy other investments. The brokerage lends you the money, and the money you've already sunk into the account is the collateral. Stocks and securities go up and down in price, and this means you need to keep a certain amount of equity in the account.
For example, if you put $50,000 into your account and borrow another $25,000 to sink into investments, and the total value of your stocks drops to $20,000, you're going to have to put in more money. The minimum amount of equity the brokerage asks you to keep in the account is the minimum maintenance. The amount is based on the value of stocks and securities in your account.
If the minimum maintenance percentage is 25% (most brokerages have a higher requirement), the value of an account is $20,000, and the equity (market value minus loan) is $4,000 (this means that the margin loan was $16,000); you first multiply the market value by the minimum required percentage, or $20,000 x 25%, which is $5,000.
Compare the equity ($4,000) to the required amount ($5,000).
If the equity is less than the required amount, the investor must either sell some of the securities or deposit enough money to bring the account equity back to the minimum requirement.