Initial Margin Definition
Learn the definition of initial margin and other ETF terminology from the etf.com glossary.
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Initial margin is the percentage of an ETF's purchase price that an investor must pay upfront when buying the ETF on margin. It is a requirement set by brokerage firms to ensure that investors have sufficient funds to cover potential losses. The initial margin requirement for ETFs varies depending on the specific ETF and the brokerage firm. However, it is typically between 25% and 100% of the ETF's purchase price. For example, if an ETF has an initial margin requirement of 50% and its purchase price is $100, an investor would need to pay $50 upfront and could borrow the remaining $50 from the brokerage firm. The borrowed funds would accrue interest, which the investor would be responsible for paying. The initial margin requirement is one of the factors that affects the leverage of an ETF. Leverage is the amount of borrowed funds that an investor can use to purchase an ETF. Higher initial margin requirements result in lower leverage, while lower initial margin requirements result in higher leverage.