when the margin is 50 percent you could borrow 3 000 when the margin is 60 percent y 665622

Calculating Initial Margin

Suppose you have $3,000 in cash in a trading account with a 50 percent initial margin requirement. What is the largest order you can place (ignoring commissions)? If the initial margin were 60 percent, how would your answer change?

When the initial margin is 50 percent, you must supply half of the total (and you borrow the other half). So, $6,000 is the largest order you could place. When the initial margin is 60 percent, your $3,000 must equal 60 percent of the total. In other words, it must be the case that $3,000 = 0.60 X Total order

Total order = $3,000/.60 = $5,000

As this example illustrates, the higher the initial margin required, the less you can borrow. When the margin is 50 percent, you could borrow $3,000. When the margin is 60 percent, you can borrow only $2,000.