Margin Buying Power Securities Vs. Cash Reg T Initial
Summary of User’s Inquiry and Solutions Provided:
- The user, Lurien, is seeking clarification on how Reg T applies to purchasing securities on margin and the implications for equity and borrowing limits.
- Fidelity representatives explained that the initial margin requirement under Reg T is 50% of the purchase price for most securities, and a minimum account equity of $2,000 is required.
- They noted that securities held on margin do count towards the Reg T requirement and that margin calls can occur if equity falls below the maintenance requirement, which varies by security.
- Fidelity recommended using their “Margin Calculator” to simulate hypothetical trades and assess how different scenarios would impact account equity and borrowing capacity.
Here’s the full thread
Hello Fidelity,
I was wondering how the initial 50% Reg T applies with equity held as marginable securities, and how equity applies to borrowing,
Do securities held on margin by Fidelity count towards the Reg T 50% requirement? I.E. if I have $3000 in a ABC, a 30% maintenance stock giving $1000 of equity, and $0 in cash, would I be able to purchase $2000 in XYZ? Of that purchase, how much would be loaned and incur interest, $1000 or $2000, my assumption is $2000.
If I had a non-margin buying power of $5000, if I traded on margin below $5000, the risk of a margin call is low, as my equity would remain close to 100%, barring any major decline of >50% in the stock price, correct?
Thanks
Thanks for reaching out, @Lurien.
Margin requirements tell you how much equity you must have in your account to cover what you’re buying (or what you hold) on margin. There are two primary types of margin requirements: initial and maintenance.
The initial margin requirement is currently 50% of the purchase price for most securities, and it is known as the Reg T or the Fed requirement, which is set by the Federal Reserve Board. Additionally, you must have a minimum account equity of $2,000.
Maintenance requirements are set by the NYSE, FINRA, and/or the brokerage firm. At Fidelity, house maintenance requirements are systematically applied based on the composition of an account. Fully-marginable securities have a minimum equity requirement of 30%, but Fidelity may require as much as 100% equity based on various factors.
You can read more about Margin requirements on our Margin FAQ page: https://www.fidelity.com/trading/faqs-margin
Securities that are not marginable (they have a 100% margin requirement) include CDs, Money market funds, Annuities, Options, Offshore mutual funds, and mutual funds you have not owned for at least 30 days.
Please note that margin requirements vary depending on the security, and factors such as concentration and margin balances may change due to intraday fluctuation. Our “Margin Calculator” is a valuable tool where hypothetical trades can be placed to view the equity requirements and impact on an account before placing the order.
You can access the Margin Calculator by following these steps on Fidelity.com once logged in:
1. Choose “Accounts & Trade” then “Account Positions”
2. Click the “Balances” tab
3. Under Additional Resources, click “Margin Calculator”
Feel free to let us know if you have more questions. We’re happy to help! 🟢
Thanks for the reply, mind if I throw some fake numbers just to confirm I have this correct?
Assume I have $5000 in settled cash in a margin account and I want to purchase a fully marginally security with a MX requirement of 30%.
Due to Reg T the most that I can borrow from fildeity is $5000, for a total of $10,000 purchase.
Then, if the price of the stock drops, so does my equity percentage, and if it goes below 30% a margin call would be issued.
Does this transaction function the same if I had $5000 in fully paid for securities instead of cash?
Edit: fuke->fake
Thanks for following up with us, @Lurien. I’m happy to help point you in the right direction.
Ultimately, margin requirements vary depending on the security, and factors such as concentration and margin balances may change due to intraday fluctuation.
Additionally, there are a variety of factors affecting the margin requirements of the securities in your account, which can impact the amount you are able to borrow. The security itself, the amount of equity in your margin account, and the composition of your account, known as Rules-Based Requirements (RBRs), can all play a factor. For example, different securities can have different margin requirements.
We have the formula all in one through the convenient access of our margin calculator. This tool allows you to mock up hypothetical trades and price movements so you’ll know how your balances will be affected. We’ve mentioned it above, but you can access the margin calculator by following these steps on Fidelity.com after logging in:
1. Choose “Accounts & Trade” then “Account Positions”
2. Click the “Balances” tab
3. Under Additional Resources, click “Margin Calculator”
Feel free to play around with the calculator, plug in your hypothetical numbers, and let us know if you still have any questions.🟢