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Abstract Trench‐parallel translation of the Central American Forearc (CAFA) is the result of strain partitioning along the Cocos and Caribbean (CA) convergent margin. Unlike the tectonics of northwestern Costa Rica and El Salvador, CAFA‐CA relative motion in Nicaragua is not accommodated on margin‐parallel fault systems. Rather, the northwest‐trending dextral shear is accommodated on margin‐normal sinistral strike‐slip faults that approximate the motion of a margin‐parallel fault (i.e., bookshelf faulting). We compare a new Global Positioning System interseismic horizontal velocity field to analytical and numerical models to show that the bookshelf faulting model can produce the observed velocity field and provide insight into the kinematics and configuration of the margin‐normal fault system. We find that a fault system with 20 km‐long parallel to sub‐parallel margin‐normal sinistral faults, spaced ∼5 km apart, locked from the surface to 5 km depth, and with interseismic slip deficits of 4 mm yr⁻¹, can replicate the observed velocity field. These findings have implications for the region's seismic hazard where shallow moderate‐magnitude earthquakes will have reoccurrence intervals of ∼50 years. These findings are also important for volcanic hazard estimation and unrest forecasting because the margin‐normal faults are in the volcanic arc and magma‐tectonic interactions have been documented along the CAFA.