Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the Chartered Alternative Investment Analyst Association (CAIA) Exam with structured quizzes, flashcards, and detailed explanations. Study efficiently and boost your confidence for the test!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What is the definition of maintenance margin in trading?

The initial deposit required to open a trading position
Collateral put up by the investor on an ongoing basis
The profit margin expected from a trading position
The maximum loss an investor can incur

The correct answer is: Collateral put up by the investor on an ongoing basis

Maintenance margin refers to the minimum amount of equity that must be maintained in a margin account after the position is established. It is the collateral that the investor must keep in the account to ensure that they can cover potential losses on their investment. This requirement helps ensure that an investor has enough equity to support their leveraged positions, thus reducing the risk for the broker. When the equity in the margin account falls below this level, the broker may issue a margin call, requiring the investor to deposit additional funds or sell some assets to restore the account to the required level. This ongoing commitment acts as a safeguard both for the investor's position and for the lender's (broker's) risk exposure. The other options do not accurately capture the concept of maintenance margin. The initial deposit is related to the initial margin, while expected profit margins and maximum losses pertain to other financial metrics rather than specifically to the maintenance of equity within a margin account.