Margin loan availability meaning refers to the total debt amount that is available for the investor to purchase securities. It can also be described as the amount available to be withdrawn. A margin account makes it easier for the investor to buy stocks and other financial products using the margin fund or borrowed money. Basically, it gives the investor an opportunity to borrow money from their brokerage firm using the securities they purchase as Collateral.
The investor has two options when it comes to investment, i.e. they can purchase these shares using cash or buy it on margin. They could also combine the two and spend half of their Capital and finance the other half through a brokerage loan. The amount they borrow for the investment refers to the margin debt. Now, margin loan availability is used to tell the investor the total margin amount available in their account for investment. It also tells them the total amount in their margin account that’s available for withdrawal.
Note that the total margin funds available for investment changes with the fluctuations in the stock prices. As the value of the shares rises and falls, the amount you have in your margin account for investment also changes. The reason is simple – the securities you purchase will be used as collateral for the loan. The higher the value of the securities, the more the loan you can get for the investment. In other words, the margin loan availability depends on the value of the shares you have invested in.
If the price of these shares drops, the margin amount you get for investment will also drop. Basically, the margin loan availability can be used to describe:
The dollar amount in your margin account that can be used for buying securities.
The dollar amount you can withdraw considering the current value of the shares held in the margin account.
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It is important to note that the margin loan availability will fluctuate with the share value, which means it will change almost every day. The brokerage firm requires you to meet the minimum maintenance level on the margin account. You are supposed to deposit additional funds or sell your existing securities if the maintenance level of your margin account drops below the minimum limit.
When the margin loan availability amount falls below the required limit, the brokerage firm will make a margin Call. A margin call refers to the broker’s request that asks you to add more funds to your account or sell the existing securities in 3 days. While most of the brokers follow the limit set by the regulatory bodies, the brokerage firm has the right to impose strict margin maintenance rules. If the investor fails to meet the margin call requirements, the brokerage firm will sell the securities owned by the investor to offset the losses. Using the margin loan availability, the investor can track the amount they can withdraw and invest at any given time.