Maintenance Margin price

suxiaoxiao

What is the intuition behind the calculation of margin call:

trigger price = Po*[(1-initial margin)/(1-maintenance margin)]?

Please explain. Thanks.

sdada

Its just the short cut formula to determine the price at which an investor who goes long on equities (using a margin account) receives a margin call.

studyn

imagine you have one share in a particular stock

Po*(1-initial margin) is your initial cash outlay

divided by

1- maintainence margin, which is how much the bank allows you to lose.

is the price your margin call.