Series 7 Margin Requirements Cheat Sheet
- April 1, 2025
- Posted by: 'FINRA Exam Mastery'
- Category: Finance
🧾 Series 7 Margin Requirements Cheat Sheet
📘 Quick Reference for Margin Rules on the Series 7 Exam
Understanding margin requirements is crucial for the Series 7 exam because it’s a topic that frequently appears. Here’s a cheat sheet that summarizes the most important margin rules you’ll need to know for the exam.
🎯 1. What is Margin?
Margin is the money borrowed from a brokerage firm to buy securities. The margin requirement is the minimum amount of equity a customer must have in their margin account to make a purchase or to maintain a position.
🎯 2. Types of Margin Accounts
Regulation T (Reg T) Margin Account
- Initial Margin Requirement: When buying securities, you can borrow up to 50% of the purchase price.
- For example, if you want to buy $10,000 worth of securities, you must deposit at least $5,000 of your own money, and the remaining $5,000 can be borrowed.
Maintenance Margin Requirement
- Minimum Equity: After purchasing on margin, you must maintain a minimum equity of 25% of the total market value of the securities in your account.
- Maintenance Margin Call: If the equity in the account falls below 25%, you will receive a margin call requiring you to deposit more funds.
🎯 3. Special Margin Rules
Long Margin Accounts (Buying Securities on Margin)
- Initial Margin Requirement: You must deposit 50% of the purchase price.
- Example: If you purchase $20,000 worth of stock, you need to deposit $10,000 as initial margin.
- Maintenance Margin: Once the securities are purchased, the maintenance margin is 25% of the market value.
Short Margin Accounts (Selling Securities Short)
- Initial Margin Requirement: When selling securities short, you must deposit 50% of the total market value of the short sale.
- Example: If you short sell $10,000 worth of stock, you need to deposit $5,000 of your own money.
- Maintenance Margin: The maintenance margin for short positions is 30% of the market value of the short sale.
🎯 4. Margin Call
A margin call occurs when the equity in a margin account falls below the required maintenance margin. This can happen when the market value of securities purchased on margin declines.
Margin Call Example:
- You buy stock for $10,000 (50% margin deposit = $5,000 borrowed from the broker).
- The stock drops to $6,000.
- Now, your equity is only $1,000 (the value of the stock minus the $5,000 you borrowed).
- Your broker will issue a margin call for you to bring the account back to the required margin level.
🎯 5. Leverage in Margin Accounts
Leverage refers to the ability to control a large position with a relatively small amount of money.
- Using Margin: If you use 50% margin, your leverage is 2:1. For every dollar you invest, you control $2 in securities.
- Risk: The more you leverage, the higher the potential for losses if the value of the securities drops.
🎯 6. Key Margin Terms to Remember
| Term | Definition |
|---|---|
| Regulation T | Federal regulation that sets the initial margin requirement at 50% for buying securities on margin. |
| Initial Margin | The amount of money a client must deposit when purchasing securities on margin. |
| Maintenance Margin | The minimum amount of equity that must be maintained in a margin account after the securities are purchased. |
| Margin Call | A demand by the broker for more funds or securities when the account’s equity falls below the required maintenance margin. |
| Exempt Securities | Certain securities (like U.S. government bonds) are exempt from margin requirements. |
| Restricted Margin | If equity falls below the maintenance margin level, a restricted margin account means you can’t use margin to purchase new securities until the balance is restored. |
🎯 7. Margin Requirements for Different Types of Securities
Exempt Securities:
- Certain securities, such as U.S. government bonds and municipal securities, are exempt from margin requirements and can be purchased without having to meet Reg T rules.
Non-Exempt Securities:
- These include stocks, options, and corporate bonds, which have Reg T margin requirements (50% for purchasing, 25-30% for maintenance).
🚀 Conclusion: Key Takeaways
- Initial Margin: For most securities, you must deposit 50% of the purchase price.
- Maintenance Margin: After purchase, you must maintain 25% equity for long positions and 30% for short positions.
- Margin Calls: Occur if your equity drops below the maintenance margin, and you’ll need to deposit additional funds to bring your account back to the required level.
- Leverage: Margin accounts allow you to control a larger position than you could with just cash, but they also increase your risk.
🎓 Need help with margin requirements or Series 7 exam prep?
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Make sure you understand margin rules thoroughly before sitting for your Series 7 exam!