The Federal Reserve rule setting the initial margin for buying stock on credit at 50%, and governing cash-account settlement.
Reg T means you can borrow up to half the purchase price of marginable stock. It also defines cash-account violations such as free-riding: selling a security before the purchase has settled with unsettled funds.
Brokers may require more than Reg T on volatile stocks and must enforce finra maintenance minimums after the purchase.
Example: with $10,000 cash, Reg T allows a $20,000 stock purchase on margin. The broker may cap a volatile small cap at 100% margin, meaning no borrowing at all.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
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