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9.4 Margin Calculations

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Series 7 General Securities Representative

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1 Introduction

About the Series 7 How to Use This Guide

2 Chapter 1: Equity Securities

1.1 Common Stock Basics 1.2 Dividends and Stock Splits 1.3 Preferred Stock 1.4 Rights and Warrants 1.5 ADRs and Foreign Securities

3 Chapter 2: Debt Securities

2.1 Bond Fundamentals 2.2 Bond Yields and Pricing 2.3 Corporate Bonds 2.4 Bond Features and Risks

4 Chapter 3: U.S. Government & Agency Securities

3.1 Treasury Securities 3.2 Agency Securities 3.3 Mortgage-Backed Securities 3.4 Money Market Instruments

5 Chapter 4: Municipal Securities

4.1 Municipal Bond Basics 4.2 General Obligation Bonds 4.3 Revenue Bonds 4.4 Municipal Bond Analysis 4.5 Municipal Securities Rules

6 Chapter 5: Investment Companies

5.1 Investment Company Basics 5.2 Mutual Funds (Open-End Funds) 5.3 Mutual Fund Pricing and Fees 5.4 Closed-End Funds and ETFs 5.5 Investment Company Taxation

7 Chapter 6: Variable Products & Annuities

6.1 Annuity Basics 6.2 Variable Annuities 6.3 Annuity Taxation 6.4 Variable Life Insurance

8 Chapter 7: Alternative Investments & DPPs

7.1 Direct Participation Program Basics 7.2 Types of DPPs 7.3 DPP Suitability and Risks 7.4 Real Estate Investment Trusts (REITs) 7.5 Hedge Funds and Other Alternatives

9 Chapter 8: Options

8.1 Options Basics 8.2 Long and Short Option Positions 8.3 Hedging Strategies 8.4 Spreads and Combinations 8.5 Index and Non-Equity Options 8.6 Options Account Requirements

10 Chapter 9: Customer Accounts

9.1 Account Types 9.2 Cash Accounts 9.3 Margin Accounts 9.4 Margin Calculations 9.5 Fiduciary and Institutional Accounts

11 Chapter 10: Retirement & Education Plans

10.1 ERISA and Qualified Plans 10.2 Defined Benefit vs. Defined Contribution 10.3 Individual Retirement Accounts 10.4 Education Savings Plans 10.5 Plan Distributions and Taxation

12 Chapter 11: Securities Markets & Trading

11.1 The Primary Market 11.2 The Secondary Market 11.3 Order Types and Execution 11.4 Trade Settlement and Reporting 11.5 Market Participants

13 Chapter 12: Rules, Regulations & Ethics

12.1 Regulatory Framework 12.2 Suitability Requirements 12.3 Communications with the Public 12.4 Prohibited Activities 12.5 Customer Protection Rules 12.6 Ethics and Professional Conduct

9.4 Margin Calculations

Key Takeaways Explain This Topic AI

Long equity = Long Market Value minus the debit balance; short equity = credit balance minus Short Market Value.

Debit and credit balances stay fixed as prices move — only equity changes.

A long maintenance call triggers at market value = debit / 0.75; a short maintenance call at market value = credit / 1.30.

SMA = equity minus 50% of Long Market Value, and buying power equals SMA times 2.

SMA is a non-decreasing line of credit, but drawing it down can create a maintenance problem.

Last updated: June 2026

Long Margin Account Math

A long margin account has three values: Long Market Value (LMV) , the Debit Balance (DR) owed to the broker, and Equity (EQ) , the customer's stake.

EQ = LMV − DR , which rearranges to LMV = DR + EQ .

The single most important behavior: the debit balance does not change as prices move — it changes only when the customer pays it down or borrows more. So when LMV rises or falls, equity absorbs the entire change .

Worked Long Example

A customer deposits $10,000 to buy $20,000 of stock:

  • Initial
  • LMV $20,000
  • DR $10,000
  • EQ $10,000 (50%)

Stock rises to $24,000: EQ = 24,000 − 10,000 = $14,000 .

Stock falls to $16,000: EQ = 16,000 − 10,000 = $6,000 .

The debit stayed $10,000 both times.

Long Maintenance Call Trigger

A maintenance call hits when long equity drops below 25% of LMV. Find the market value at which equity equals exactly 25% with:

Trigger price = DR ÷ (1 − maintenance %) = DR ÷ 0.75

Example: DR = $10,000 → trigger = 10,000 ÷ 0.75 = $13,333 . At that LMV, equity is $3,333, exactly 25%. Below it, a maintenance call goes out.

Call amount (cash needed to restore to maintenance): (maintenance % × LMV) − current equity. If LMV = $12,000, DR = $10,000, EQ = $2,000, then (0.25 × 12,000) − 2,000 = $1,000 .

Special Memorandum Account (SMA)

SMA is a line of credit that builds when equity exceeds the 50% Reg T requirement. Use either equivalent formula:

SMA = EQ − (0.50 × LMV) or SMA = (0.50 × LMV) − DR

Example: LMV = $30,000, DR = $10,000 → EQ = $20,000; Reg T requirement = 0.50 × 30,000 = $15,000; SMA = 20,000 − 15,000 = $5,000 .

SMA increases from appreciation above Reg T, cash dividends, cash deposits, and sale proceeds. Crucially, SMA does not fall when the market falls — it is a memorandum balance, not real cash.

Buying Power

Each $1 of SMA supports $2 of new marginable stock because Reg T requires only 50% down:

Buying power = SMA × 2.

So $5,000 SMA = $10,000 buying power. A customer may also withdraw cash up to the SMA amount if maintenance still holds afterward.

Short Margin Account Math

Short positions flip the signs: the customer owes shares, not dollars. The values are Short Market Value (SMV) , the Credit Balance (CR) , and Equity (EQ) .

EQ = CR − SMV , so CR = SMV + EQ .

The credit balance is the constant here: it equals sale proceeds plus the margin deposit and does not change as the stock moves.

Worked Short Example

Short 100 shares at $60 (SMV = $6,000), deposit 50% ($3,000):

  • Value
  • SMV $6,000
  • CR $9,000 (proceeds $6,000 + deposit $3,000)
  • EQ $3,000 (50%)

Stock falls to $40 (a gain for the short): EQ = 9,000 − 4,000 = $5,000 .

Stock rises to $80 (a loss): EQ = 9,000 − 8,000 = $1,000 — a call.

Short Maintenance Call Trigger

Short maintenance is 30% , so equity must be at least 30% of SMV. The trigger price (where equity equals exactly 30%) is:

Trigger price = CR ÷ (1 + maintenance %) = CR ÷ 1.30

Example: CR = $9,000 → trigger = 9,000 ÷ 1.30 = $6,923 . If SMV rises above $6,923, a maintenance call is issued (rising prices hurt the short seller).

Combined (Mixed) Accounts

With both long and short positions:

Combined equity = (LMV + CR) − (DR + SMV).

Maintenance is evaluated for the account as a whole.

Formula Cheat Sheet

  • Calculation Formula
  • Long equity LMV − DR
  • Short equity CR − SMV
  • Long maintenance trigger DR ÷ 0.75
  • Short maintenance trigger CR ÷ 1.30
  • SMA EQ − (0.50 × LMV)
  • Buying power SMA × 2
  • Restricted Accounts

An account is restricted when equity falls below the 50% Reg T requirement but is still above the maintenance minimum — for example, equity at 40% of LMV. The account is not in a maintenance call, but special rules apply. The customer is not forced to deposit money, yet certain actions are limited: under the retention requirement , if the customer sells securities in a restricted account, 50% of the sale proceeds must be retained to reduce the debit balance, and only the other 50% (which becomes SMA) is released.

This is a favorite distractor, so distinguish a restricted account (below 50%, above maintenance) from an account in a maintenance call (below 25% long).

How SMA Behaves Over Time

SMA is a one-way ratchet. It rises when the market appreciates, when cash dividends post, when cash is deposited, and when securities are sold (50% of proceeds). It does not shrink when the market declines — the broker keeps the memorandum balance on the books. However, using SMA reduces it dollar-for-dollar and increases the debit balance, which can push a thin account toward a maintenance call. A customer near maintenance who draws SMA may immediately trigger a call, so SMA is real borrowing power, not free money.

Step-by-Step: Solving a Maintenance Call Problem

Identify whether the account is long or short .

Find the constant balance — debit for long, credit for short.

For a long account, divide the debit by 0.75 to get the trigger price; for a short account, divide the credit by 1.30 .

Compare current market value to the trigger to see if a call exists.

If a call exists, compute the deposit as (maintenance % × market value) − current equity.

Quick Numerical Drill

Long: DR = $30,000 → trigger = 30,000 ÷ 0.75 = $40,000 .

Short: CR = $26,000 → trigger = 26,000 ÷ 1.30 = $20,000 .

SMA: LMV = $40,000, DR = $12,000 → equity $28,000, Reg T need $20,000, SMA = $8,000 , buying power $16,000 .

On the Exam

Watch which balance is constant: the debit in long accounts and the credit in short accounts. Memorize the two trigger prices (debit ÷ 0.75 for longs, credit ÷ 1.30 for shorts), remember that SMA never decreases on a market drop, and recall that SMA buys twice its dollar amount of marginable securities.