The formula to calculate Initial Margin is:
\[ IM = \left( \frac{MR}{PP} \right) \times 100 \]
Where:
Initial Margin is the percentage of the purchase price of a security that must be covered by the investor's own funds when buying on margin. It is calculated by dividing the margin requirement by the purchase price and multiplying by 100 to get a percentage. This metric is important for understanding the amount of leverage used in a margin transaction.
Let's assume the following values:
Using the formula:
\[ IM = \left( \frac{2000}{10000} \right) \times 100 = 20\% \]
The Initial Margin is 20%.
Let's assume the following values:
Using the formula:
\[ IM = \left( \frac{10000}{50000} \right) \times 100 = 20\% \]
The Initial Margin is 20%.