if an investor long 1000 share of stock with price $50, with price 10, the initial margin is 60%, maintenace margin is 30%. at which price the investor could sell without a margin call. i calculated as : 50-50*(60%-30%)=35. why it has been calculated as 50*(1-60%)/(1-30%)=28.57? I think any price below $35 will lead to a margin call. Thanks.
thats just the way its calculated. learn it. live it. breathe it. long margin call price = price * (1-initial margin)/(1-maintenance margin) short margin call price = price * (1+initial margin)/(1+maintenance margin)
Initial margin is the initial level of equity you need to maintain. So, in this case, for a 50 stock, initial margin @ 60% you need to maintain at least 30 of equity. So you pay 30$ and borrow 20$ If you start receiving margin call at price $X, it means that at price $X, your equity % is the maintenance margin% (30%) So, X*30% is the equity amount you need to maintain @ price X X- 20 (amt borrowed) is the amount of equity X*0.3=X-20 X=28.57 check this out http://www.investopedia.com/university/margin/margin2.asp
i never remember those formuals straight out, but know how they are derived. so first, work out your initial margin… 60% of $50 is $30 therefore, you borrowed $20 so, now, the amount of equity you have (as a %) at any time is: (P-20)/P and equate this to the maintenance margin, cos this is the minimum amount of equity you should have in your account so, P-20 ____ = 0.30 P and THIS is how those equations are worked out… a bit of simple algebra, and you get P = 28.57
LongOnCFA Wrote: ------------------------------------------------------- > thats just the way its calculated. learn it. live > it. breathe it. > > long margin call price = price * (1-initial > margin)/(1-maintenance margin) > > short margin call price = price * (1+initial > margin)/(1+maintenance margin) That’s now how its calculated. The way I calculate is, loan amount / share qty * (1 - initial margin) 20000 / .70 x 1000 = 28.57