Is "initial margin rate" equal to margin?

Question

In Bodie, Kane and Marcus, the term "initial margin percentage" seems to be used synonymously to "margin", which is the equity to total investment ratio (where total investment amount = equity + amount borrowed). Is this the case in actual finance?

Answer 1

Reg T margin for initial purchases in the USA is 50% (brokers can require more). It is referred to as "initial margin" or simply "margin".

Buying Power = (Cash or Marginable Securities) / (Margin Rate)

(Market Value) - (Debit Balance) = Equity

Current Margin = Equity / (Market Value)

There are different calculations for Minimum Margin Maintenance Requirement as well as for Selling Short on margin.

Answer 2

"Initial margin ratio" is not equal to margin.

"Initial margin ratio" refers to the ratio between the initial margin required to be paid at the time of trading and the price of the underlying asset set by the exchange, usually expressed as a percentage. The higher the ratio, the higher the initial margin required. The initial margin ratio is set by the exchange based on the risk level of the underlying asset and market volatility, aimed at controlling trading risks and maintaining market stability.

"Margin" refers to a certain proportion of funds or securities that the trading parties are required to deposit at the time of trading in derivative transactions, which can be used to guarantee the performance of contractual obligations by both parties. In the process of trading, when the trading direction develops against the trend, resulting in unrealized profits or losses, the role of margin becomes evident, as it can be used to offset losses or compensate the counterparty.

Therefore, although "initial margin ratio" and "margin" are both related to trading risks and capital management, the concepts and roles they refer to are different.