0

I know for a regular margin account, the requirements of Regulation T generally limit leverage on equity to 2:1, which means SMA has to be positive for overnight.

How about a portfolio margin account? Could leverage goes above 2:1 overnight for a portfolio margin account? I think this means SMA can be negative for a portfolio margin account, right?

1 Answer 1

1

I know for a regular margin account, the requirements of Regulation T generally limit leverage on equity to 2:1, which means SMA has to be positive for overnight.

Both statements are true but they are not linked as your statement implies.

The initial margin requirement is 50%.

SMA is the buying power or excess equity available in a margin account for buying additional securities (cash plus available margin).

If one goes to full margin, SMA is zero. However, a decline in the value of the holdings does not cause SMA to decline below zero. It causes a lower margin amount which results in a restricted account (margin between 25% and 50%). At that point, additional purchases must be funded by the additional initial margin requirement.

2
  • But how does a portfolio margin account work differently? Nov 27, 2020 at 2:41
  • Explaining portfolio margin is beyond the scope of an answer here. Google "Portfolio Margin" and you'll see how it is handled. Nov 27, 2020 at 5:53

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.