Free Series 7 Margin Practice Questions

Topic summary

Margin questions reduce to account equations. For long accounts, market value minus debit equals equity. For short accounts, credit balance minus short market value equals equity.

Common traps

• Using debit balance in a short account instead of credit balance.
• Forgetting that Regulation T is an initial requirement, not maintenance.
• Treating SMA as cash instead of buying power capacity.
• Not checking whether the account is long or short before calculating equity.

Free sample questions

1. A long margin account has $24,000 market value and a $10,000 debit balance. What is the equity? Correct answer: $14,000. Long account equity equals long market value minus debit balance. $24,000 - $10,000 = $14,000.
2. A customer buys $20,000 of marginable stock in a new margin account. If Regulation T is 50%, what is the initial deposit? Correct answer: $10,000. Regulation T requires 50% initial equity for a long margin stock purchase. 50% of $20,000 is $10,000.
3. A long margin account has $16,000 market value. What is the FINRA minimum maintenance equity at 25%? Correct answer: $4,000. Minimum long maintenance is generally 25% of current market value. 25% of $16,000 is $4,000.
4. A short margin account has a $30,000 credit balance and $22,000 short market value. What is the equity? Correct answer: $8,000. Short account equity equals credit balance minus short market value. $30,000 - $22,000 = $8,000.
5. A long margin account has $3,000 of SMA. How much additional stock buying power does that SMA generally create? Correct answer: $6,000. In a long margin account, SMA buying power is generally twice the SMA because Regulation T is 50%. $3,000 x 2 = $6,000.
6. A long margin account is restricted when equity is below which requirement? Correct answer: Regulation T initial requirement. A restricted account has equity below the Regulation T initial requirement, even if it may still be above maintenance.
7. In a long margin account, the debit balance represents what? Correct answer: The amount borrowed from the broker-dealer. The debit balance is the loan balance in a long margin account. Equity is market value minus that debit balance.
8. In a short margin account, what happens to equity when the shorted stock rises in price, assuming credit balance is unchanged? Correct answer: Equity decreases. Short equity equals credit balance minus short market value. If the short market value rises, equity falls.
9. Which item is most central to a basic Series 7 long margin account calculation? Correct answer: Debit balance. Long account math starts with market value, debit balance, and equity. The debit balance is central to the equation.
10. Why must margin recommendations consider risk tolerance? Correct answer: Borrowing can magnify losses. Margin uses borrowed money. Leverage can magnify gains, but it can also magnify losses and create calls for additional equity.