Initial Margin Definition

Learn the definition of initial margin and other ETF terminology from the etf.com glossary.

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Reviewed by: etf.com Staff
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Edited by: etf.com Staff

Learn more about Initial Margins

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.

Related Terms

Leveraged ETF, Exchange Traded Fund (ETF) 

ETF Glossary is etf.com’s collection of key terms and definitions related to exchange-traded funds. ETFs are investment funds that are traded on stock exchanges, and they can encompass a wide range of asset classes, including stocks, bonds, commodities and more. Given the diverse range of ETFs and the complexity of financial markets, having a clear understanding of ETF-related terminology is instrumental for investors looking to make informed decisions, manage risks effectively and navigate the evolving landscape of ETF investments.