Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesMedium
A client has a margin account with a current market value of $60,000. Their debit balance is $25,000. If the Regulation T (Reg T) margin requirement is 50%, what is the client's equity in the account?
- A$35,000
- B$60,000
- C$30,000
- D$25,000
Show answer & explanationAnswer & explanation
Correct answer: A. $35,000
Equity in a margin account is calculated as the current market value of the securities minus the debit balance (the amount borrowed). In this case, $60,000 (Market Value) - $25,000 (Debit Balance) = $35,000 (Equity). The Reg T requirement is relevant for initial margin, not for calculating current equity.
Why the other options are wrong
- B. This is the market value of the securities, not the equity.
- C. This would be the Reg T requirement for the market value, but not the current equity.
- D. This is the debit balance, not the equity.
Equity in Margin Account
The client's ownership stake in a margin account, calculated as the market value of securities minus the debit balance.
- Equity = Market Value - Debit Balance.
- Represents the client's net worth within the margin account.
- Used to determine if the account meets maintenance margin requirements.
Memory trick: Equity is what you 'Own' after you pay your 'Loan'.