Example of maintenance margin
Let’s say you want to go long on 100 shares of company ABC, which are currently trading at $500. This means that the full value of your position is $50,000. However, because you’re trading on leverage, you only need to put up an initial deposit of 20%. Your margin deposit is therefore $10,000 ($50,000 x 20%).
You have $10,000 in your account when you decide to place the trade, which is enough to cover your margin requirement. But if the money in your account falls – as a result of your position losing money – you would be placed on margin call immediately. This is because you do not have any additional funds with which to cover your losses.
To keep your position open, you would need to top up your account to get your balance above $10,000. The amount of money you’d be required to deposit is your maintenance margin. If your balance fell to $9800, for example, you’d need to add $200 to your account.
However, if the capital in your account fell by 50% – to $5000 – your account would be triggered for position closure.