Short Sale Margin Rules for Low-Priced Stocks (Under $5/Share)
An investor sells short 1,000 shares of a low-priced stock trading at $2.00 per share ($2,000 total value). Under FINRA Rule 4210, what is the required initial margin deposit?
Under FINRA Rule 4210, for short sales of stock trading under $5.00 per share, the margin requirement is the GREATER of $2.50 per share OR 100% of market value. 1,000 shares × $2.50 = $2,500 required deposit.
Complete Analysis & Legal Rationale
Cheap stocks have violent volatility and borrow risks. The minimum margin for stocks below $5 is $2.50/share (or 100%, whichever is greater). For stocks between $5 and $17.50, the requirement is $5.00 per share.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
1,000 shares × $2.50/share = $2,500 minimum requirement.
Standard Reg T 50% does not apply to cheap stocks under $5.
100% is $2,000, which is less than the $2.50/share ($2,500) floor.
$5.00 per share applies to stocks trading between $5.00 and $17.50.
Official Standard: Establishes $2.50/share or 100% minimum on short positions under $5.