Initial Margin Definition. Initial Margin is the initial deposit of collateral required by a broker/dealer that extends margin or leverage to an investor or forex trader in order to enter into a position. The funds are a hedge to cover credit risk and acts as a guarantee on future performance. An initial margin may also act as a good-faith deposit required to activate your account, whether you are using a brokerage firm or administering your own account. Thereafter, the level of collateral required over the initial margin until the position is closed is the maintenance requirement. The maintenance requirement is the minimum amount to be collateralized in order to keep an open position. It is generally lower than the initial requirement. This allows the price to move against the margin without forcing a margin call immediately after the initial transaction. On instruments determined to be especially risky, however, the regulators, the exchange, or the broker may set the maintenance requirement higher than normal or equal to the initial requirement to reduce their exposure to the risk accepted by the trader.
Forextraders' Broker of the Month
BlackBull Markets is a reliable and well-respected trading platform that provides its customers with high-quality access to a wide range of asset groups. The broker is headquartered in New Zealand which explains why it has flown under the radar for a few years but it is a great broker that is now building a global following. The BlackBull Markets site is intuitive and easy to use, making it an ideal choice for beginners.