Calculating Margins
Placing trades can feel overwhelming if you don’t understand the importance of calculating margin. A margin allows you to buy securities by borrowing money.
Learn how to calculate margin
Calculating Margin Requirements
To calculate the margin required for a long stock purchase, multiply the number of shares X the price X the margin rate. The margin requirement for a short sale is the regular margin requirement plus 100% of the value of the security.
Margin Requirement = shares x price x margin rate percentage
Examples:Long Stock
Purchase 1,000 shares of a stock at $50 with margin rate of 30%. The margin requirement would be:
1,000 shares x $50 x 30% margin rate = $15,000
This is the minimum required amount of cash or excess margin that must be in the account before a buy order can be entered.
Since 30% is the margin rate, TD Direct Investing is lending the account holder 70% of the trade value.
Maximum loan value is 1,000 shares x $50 x 70% = $35,000
Short Stock
Short sell 500 shares of a 50% marginable stock priced at $10.00. The margin requirement is 150%. Note: 100% of the margin requirement is generated from the sale of the security. Therefore, the additional initial margin requirement is 50%, the same amount required in order to accept the trade if you were purchasing the stock.
500 shares x $10.00 x 50% = $2,500
The total margin requirement to hold the position, including the 100% of the proceeds from the short sell, is calculated as follows:
500 share x 10.00 x 150% = $7,500
(Note: TD Direct Investing does not pay interest on the cash proceeds of the short sale.)