Series 7 practice questionhardMargin Accounts — Short Margin
A client has a short position with a credit balance of $90,000. The current market value of the short position is $70,000. The maintenance requirement for short accounts is 30%. What is the client's excess equity?
- A$0✓ Correct answer
- B$1,000
- C$5,000
- D$10,000
Explanation
Why A — $0
Equity = Credit balance - Market value = $90,000 - $70,000 = $20,000. Equity percentage = $20,000 / $70,000 = 28.6%. The 30% maintenance requirement calls for $70,000 x 30% = $21,000 in equity. Since current equity ($20,000) is below the required equity ($21,000), the client actually has a deficit and would face a margin call for $1,000. There is no excess equity; the account is undermargined.
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