Definition – What does In the Initial Margin mean?
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.
