🎯 In 30 seconds: A margin account lets you borrow from your broker to buy more stock than your cash covers. Under Regulation T you can borrow up to 50% of a purchase, and FINRA requires you to keep equity of at least 25% of your stocks' value (many brokers require 30% to 40%). Borrowing doubles your gains and your losses, you pay interest on the loan, and if prices fall far enough your broker can sell your shares without asking you. You can lose more than you put in.
What margin is
In a cash account you pay the full price of everything you buy. In a margin account your broker lends you money, using the stocks in the account as collateral, the way a bank holds a house as collateral for a mortgage.
Three words you need:
- Market value: what all the securities in the account are worth right now.
- Debit balance (the loan): how much you owe the broker.
- Equity: what is actually yours.
Equity = market value minus loan.
The loan does not shrink when prices fall. Only your equity does. That one fact explains everything else in this chapter.
The rules: 50%, 25% and $2,000
| Rule | Who sets it | What it says |
|---|---|---|
| Minimum equity | FINRA Rule 4210 | At least $2,000 of equity to borrow (or the full purchase price if less) |
| Initial margin: 50% | Federal Reserve Regulation T | You may borrow up to 50% of the purchase price of marginable stock |
| Maintenance margin: 25% | FINRA Rule 4210 | Equity must stay at least 25% of the market value of long stock |
| House requirement | Your broker | Often 30% to 40%, higher for volatile or concentrated positions |
Not every security can be bought on margin, and a broker can require more than the minimum on any position, especially volatile or concentrated ones.
2026 update. FINRA's new intraday margin standard took effect June 4, 2026, with a transition period for brokers until October 20, 2027. It requires the 25% maintenance level to be met throughout the trading day, not only at the close, and it replaced the old pattern day trader rule. Details are in Day trading.
Buying power
Buying power is how much you can buy right now. With 50% initial margin, $10,000 of cash in a margin account lets you buy up to $20,000 of marginable stock: $10,000 of yours plus a $10,000 loan.
That number is a limit, not a target. Using all of your buying power means a 25% fall in your stocks wipes out half your equity and puts you close to a margin call, as the next example shows.
Margin interest
The loan costs interest, charged daily and usually billed monthly. Rates vary by broker and by how much you borrow, and they move with short-term interest rates. Check your broker's current rate table before borrowing.
Worked example with a hypothetical 10% annual rate:
| Loan | $10,000 |
| Interest per year: $10,000 x 10% | $1,000 |
| Interest per day: $1,000 / 365 | $2.74 |
| Held for 3 months | about $250 |
Your borrowed shares must earn more than the interest just to break even. A stock that goes nowhere for a year costs you $1,000 in this example.
A margin call, step by step
Hypothetical. You deposit $10,000 and buy 400 shares of Company X at $50, using $10,000 of your money and a $10,000 loan. Maintenance requirement: 25%.
| Market value: 400 x $50 | $20,000 |
| Loan | $10,000 |
| Equity | $10,000 (50%) |
At what price do you get a margin call? You hit the 25% level when equity equals 25% of market value. With 400 shares and a $10,000 loan:
Call price = loan / (shares x (1 minus maintenance %)) = $10,000 / (400 x 0.75) = $33.33
With a 30% house requirement it is $10,000 / (400 x 0.70) = $35.71. That is only a 29% drop from $50.
The stock falls to $30.
| Market value: 400 x $30 | $12,000 |
| Loan (unchanged) | $10,000 |
| Equity | $2,000 (16.7%) |
| Required: 25% x $12,000 | $3,000 |
| Margin call | $1,000 |
You have three ways to meet it:
- Deposit $1,000 in cash. Equity becomes $3,000 and the loan drops to $9,000.
- Deposit marginable stock from elsewhere worth enough to cover the call. With 25% maintenance, $1,000 of call needs about $1,333 of stock (since only 75% of its value counts as cover).
- Sell shares. Selling repays the loan. You need $2,000 / (market value left) to be at least 25%, so the market value left can be at most $8,000. You must sell $4,000 of stock: 134 shares at $30. You are left with 266 shares worth $7,980, a loan of $5,980 and $2,000 of equity, just over 25%.
What your broker can do
Margin agreements give the broker strong powers, and the SEC's investor guidance spells them out:
- The firm can sell some or all of your securities without consulting you.
- It can sell without waiting for you to meet a margin call. You are not entitled to an extension.
- It may not be required to send a margin call at all before selling.
- Many firms set maintenance requirements of 30% to 40%, and can be stricter on particular stocks.
In a fast market, forced sales happen at bad prices, often near the low of the day. You lose control of the timing of your exit.
How margin magnifies losses
Compare the same $10,000 in a cash account (200 shares) and fully margined (400 shares with a $10,000 loan), ignoring interest:
| Stock price | Change | Cash account equity | Margin account equity | Margin result |
|---|---|---|---|---|
| $60 | +20% | $12,000 (+20%) | $14,000 | +40% |
| $50 | 0% | $10,000 | $10,000 | 0% |
| $40 | -20% | $8,000 (-20%) | $6,000 | -40% |
| $30 | -40% | $6,000 (-40%) | $2,000 | -80% (margin call earlier) |
| $25 | -50% | $5,000 (-50%) | $0 | -100% |
| $20 | -60% | $4,000 (-60%) | -$2,000 | You owe the broker $2,000 |
Should a beginner use margin?
For most people starting out, no. A cash account removes the risk of owing money, forced sales and interest. A margin account is still useful for some things that do not involve borrowing, such as avoiding cash-account settlement restrictions (The rules every trader runs into), and it is required for short selling and many options strategies. You can have a margin account and simply never borrow.
Leverage shows up in other products too, such as leveraged ETFs, options and futures; see Leverage everywhere.
Try it
Take a position you hold or follow in your paper portfolio. Work out, using the formula above, the margin call price if you had bought it with 50% borrowed money at 25% maintenance and at 35% maintenance. Then look at its chart for the past five years and count how many times the price touched those levels. That count is how many times you would have faced a margin call.
- How do you work out the equity in a margin account? Answer: Equity = market value minus the loan. The loan does not shrink when prices fall, only your equity does.
- What do Regulation T and FINRA’s maintenance rule require? Answer: Regulation T lets you borrow up to 50% of the purchase price. FINRA requires equity of at least 25% of the market value of long stock (brokers often require 30% to 40%).
- You buy 400 shares at $50 with a $10,000 loan. At 25% maintenance, at what price do you get a margin call? Answer: About $33.33 ($10,000 / (400 x 0.75)).
- You borrow $10,000 at a 10% annual rate. What does the interest cost per year, and for 3 months? Answer: $1,000 a year, about $2.74 a day, or about $250 for 3 months.