Financial Industry Regulatory Authority (FINRA) Practice Exam 2026 - Free FINRA Practice Questions and Study Guide

In a margin account, the insurance coverage typically applies to the equity in the account, which represents the net asset value that belongs to the account holders after accounting for any borrowing against those assets. Equity is calculated as the value of the securities held in the account minus the debit balance, or the amount owed. This is significant because it reflects the actual financial stake that the joint account holders have in the account, as opposed to the total account value or the market value of all securities, which may include outstanding loans.

Understanding insurance coverage in margin accounts is crucial for investors, as it protects their equity even if market fluctuations cause the value of the securities to decline. This distinction is important for ensuring that investors have a safety net for their investments when using borrowed funds in a margin account. Other options, like the total account value or market value of all securities, do not accurately reflect what the insurance covers, which is specifically the equity portion.