FINRA Series 7Investment Information and Suitable RecommendationsEasy
A client sells short 100 shares of XYZ stock at $40 per share in a margin account. Under Regulation T, what is the minimum initial margin requirement for this transaction?
- A$2,000
- B$1,000
- C$4,000
- D$8,000
Show answer & explanationAnswer & explanation
Correct answer: A. $2,000
Regulation T requires an initial margin of 50% of the sale price for short positions, or $2,000, whichever is greater. In this case, 50% of $4,000 (100 shares * $40) is $2,000. Since $2,000 is not less than $2,000 (it's equal), the requirement is $2,000.
Why the other options are wrong
- B. This would be 25% of the market value, which is not the initial margin requirement.
- C. This is the full market value of the short sale, not the margin requirement.
- D. Incorrect calculation.
Short Sale Initial Margin (Reg T)
For short stock positions, Regulation T requires an initial deposit of 50% of the sale price or $2,000, whichever amount is greater. The actual amount deposited is the same as for a long position.
- Applies to margin accounts for short selling.
- Minimum of 50% of market value.
- Absolute minimum is $2,000 (for sales under $4,000).
Memory trick: Short Sale, Same 50% Rule, Minimum Two Grand.