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I was recently introduced to the concept of margin and have been reading about it on and off for the last 2 months. I want to use margin funds for my house remodeling, and would appreciate if someone could ascertain my math below.

Problem: I own 300K worth of VTI stock in interactive brokers. I am planning to borrow 100K cash on margin and deposit it into my savings account. How much would my VTI investment have to drop before I am hit with a margin call?

Answer: Lets call this value x. When my VTI investment hits x, my total fund value is (x+100K). Since the overnight maintenance margin is 50%, the margin amount would be (x+100K)/2. I would be hit with a margin call if funds I own equal this margin, or in other words, x = (x+100K)/2. This implies that x=100K.

Since I don't believe VTI will drop to 1/3rd its value in the near future, I feel safe borrowing 100K.

Is this calculation correct? Anything else I should be aware of?

Update after reading the answers

The above calculation is wrong. Let the amount VTI reduces to be x. Then my equity in the account is (x-100). Assuming margin to be 50%, we want (x-100)/x = .5 or x=200. So I will be hit with a margin call if VTI drops by 33%.
elexhobby
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If you take out $100k, your position in VTI cannot drop below $133k (cannot drop more than 55%).

Maintenance margin is usually 25%. This means that you cannot owe more than 75% your account's worth. If you borrow $100k and your VTI position is worth $300k, you owe 33% of your account's worth. If your position in VTI goes down in value to $133k, you owe 75% of your account's worth ($100k of $133k), and margin calls will start to occur if it drops any further.

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This answer is the same as what Axiomatic Nexus explained but just in a somewhat different fashion.

Reg T margin is 50% so if your broker's rate was the same, you could buy $300k of stocks with cash or fully paid marginable securities.

In your case, you are taking a margin loan of $100k and your equity reduces to $200k. If the margin maintenance requirement is 25% then the short cut formula is 4/3 the debit balance which is 4/3 times $100k or $133,333. At that level you would have $33,333 of equity which is 1/4 of the market value (.25%) margin. That level would represent a 55.6% drop in value of your holdings.

Bob Baerker
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