Investors wanting to have more flexibility and supercharge their investing power generally look to margin trading to assist with extending their purchasing power. Margin trading allows investors to borrow funds from a broker to increase their buying power. However, there are two important concepts every investor or trader must understand: initial margin and maintenance margin.
Although they are closely related, initial margin and maintenance margin serve different purposes. In this article, we’ll explain the key differences between initial margin and maintenance margin, how each works, and why they matter for your investment strategy.
What is a margin loan?
As mentioned in our previous article, a margin loan is money borrowed from a broker (such as Tiger Brokers Australia) to buy securities such as stocks and ETFs.
To reduce risk on borrowing, brokers impose margin requirements, particularly initial margin requirements and maintenance margin requirements.
The Australian Securities and Investments Commission (ASIC) sets the overarching regulations for margin lending and trading in Australia, including minimum margin levels.
What is initial margin?
Put simply, the initial margin is the minimum amount of capital an investor must contribute when opening a margin position. This is the initial amount deposited before the investor is provided with a margin loan. However, investors can get confused between the relationship of an initial margin and a loan-to-value ratio (LVR). It's important to understand the relationship between the two as explained below.
Initial margin key features:
Required before or at the time of purchase
Typically expressed as a percentage of the total trade value
Often regulated by financial authorities
Determines the maximum leverage available to the investor
Initial margin example:
If you purchase $20,000 worth of stock, let's use Nvidia (NVDA) as an example here. In this example, there is a 50% initial margin requirement:
You invest $10,000 of your own funds
You borrow $10,000 from the broker
Once the trade is executed, the initial margin requirement no longer applies. Maintenance margin now comes into play.
The relationship between initial margin and loan-to-value ratio (LVR)
When you trade or invest using leverage, two numbers quietly determine how much risk you’re taking: initial margin and loan-to-value ratio (LVR). They’re often discussed as separate concepts, but in reality, they are just two ways of describing the same thing — who is funding the asset and by how much. One measures the lender’s exposure, the other measures your safety buffer.
What is the loan-to-value ratio (LVR)?
The loan-to-value ratio measures how much of an asset is funded by borrowed money.
LVR = value of the loan/value of your investments
Why both metrics exist
Although mathematically equivalent, they serve different purposes.
Measure | Perspective | What it tells you |
LVR | Lender | How much of the asset they are financing |
Initial Margin | Trader or investor | How much capital you have at risk |
A high LVR indicates that you are highly leveraged, with a thin margin. A low LVR means you have put in more of your own money and have a larger cushion against price movements.
Why this relationship matters
Losses from price movements are absorbed by your margin first, not the loan. This is what creates leverage risk.
If you have a position with an 80% LVR (20% margin), a 10% fall in the asset price doesn’t just reduce your position by 10% — it wipes out half of your equity.
This is why margin calls, maintenance margins, and liquidation thresholds all revolve around LVR and margin. They are simply different ways of defining how much price movement your equity can withstand before the lender steps in.
What is a maintenance margin?
A Maintenance margin is the minimum level of equity that must be maintained in a margin account after the position has been opened.
Key features include:
Applies for the duration of the margin loan
Usually lower than the initial margin (commonly 25%–40%)
Set primarily by brokers
Failure to meet it results in a margin call
Maintenance margin example:
If your broker requires a 30% maintenance margin and your investment value declines, your equity must remain at or above 30% of the current market value. Falling below this threshold triggers a margin call.
Initial margin vs maintenance margin: Key differences
Feature | Initial Margin | Maintenance Margin |
Applies when | Opening a margin trade | After the trade is open |
Purpose | Determines borrowing power | Ensures ongoing account equity |
Typical percentage | Higher (e.g., 50%) | Lower (25%–40%) |
Margin call risk | No | Yes |
Set by | Regulators & brokers | Mostly brokers |
Why understanding margin requirements matters
Initial margin and maintenance margin play distinct but complementary roles in margin trading. It's important for investors to understand the difference between initial margin and maintenance margin loans, as it helps them:
Avoid unexpected margin calls- this can be done in several ways, including using lower leverage, keeping extra cash in their account as a buffer and monitoring positions frequently. For more on margin calls, read our blog.
Reduce the risk of forced liquidation
Manage leverage more responsibly
Protect capital during market volatility
Understanding both is essential for investors to achieve effective risk management and long-term trading success. When looking to apply for a margin loan, always speak with a finance professional or your accountant to determine if this product is right for you.
Applying for a margin loan on Tiger Trade
Tiger Trade margin loans offer investors and traders the ability to lend across multiple international markets and short international stocks. For investors looking to apply for a margin loan, we always suggest you consult your financial professional before entering into such a commitment.
Applying for a margin loan on the Tiger Brokers website is simple, and you can apply for a loan of up to AUD 80,000 with an annual rate of 7.99%.
New clients:
On the Tiger Trade desktop or the app, you must create an account by clicking "Sign up" and finalising the account opening process. You will then be given the option to apply for cash or margin. Choose margin and provide your basic financial details via the prompts.
Our team will review your application and get back to you within 2-3 business days to advise if you have been approved.
Existing clients:
Open the Tiger Trade app > Portfolio > Account > Upgrade to Margin and follow the prompts. You will be given the option to apply for cash or margin. Choose margin and provide your basic financial details via the prompts.
Our team will review your application and get back to you within 2-3 business days to advise if you have been approved.
All investment products carry risk and are not suitable for all investors. The value of your investment may go down as well as up, which means you could get back less than your original amount put in. Options trading, margin lending and short selling carries a high level of risk, and you should only trade with money you can afford to lose. For margin lending and short selling, if the value of your collateral falls or your position moves against you, Tiger Brokers (AU) may be required to sell your holdings or close your positions without prior notice to meet margin requirements or limit potential losses. Please ensure you fully understand the risks involved and seek independent advice if necessary. Past performance is no guarantee of future results. Information provided by TBAU is not intended to be advice. If any advice is included, it does not take into account your objectives, financial situation or needs. Before acting on any advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation or needs. Please ensure you have read and understand the financial services guide, risk disclosure statements, relevant product disclosure statements and target market determinations, terms and conditions, and other disclosure and legal documents before making any decision about TBAU’s products or services.
Tiger Brokers (AU) Pty Limited, ABN 12 007 268 386, (“TBAU”), holds an Australian Financial Services Licence (AFSL) no. 300767.
