M

Maintenance margin is the minimum amount of equity that investors must carry in their margin account at all times. It is used to protect the brokerage houses in margin transactions. If the balance falls below the maintenance margin, for example, because of losses on the foreign currency futures contract, a

margin call

is issued. Enough new money must be added to the account balance to avoid the margin call. The amount of margin is always measured in terms of its relative amount of equity, which is considered the investor’s collateral. The formula for margin is

where

V

=

value of securities and

M

=

margin loan balance (the amount of money being borrowed).