Quick answer
A margin account lets you borrow cash from your broker to buy securities, with your account as collateral. US rules cap the loan at 50% of the purchase price, and equity must stay at least 25% of the holdings' value — or the firm can sell without asking [1].
Key points
- Margin is a loan from your broker, secured by the investments in your account, and it charges interest.
- Under the Federal Reserve's Regulation T you may borrow up to 50% of the purchase price of margin securities.
- FINRA requires equity of at least 25% of the market value; many firms set higher "house" requirements, often 30% to 40%.
- If equity falls too low, the firm can sell your securities, may not have to warn you first, and can choose what to sell.
- Because the loan stays the same while prices move, losses on your own money are magnified and can exceed 100%.
#What is a margin account?
Investor.gov, the SEC's education site, defines it this way: "A 'margin account' is a type of brokerage account in which your broker-dealer lends you cash, using the account as collateral, to purchase securities" [1]. Collateral means assets the lender can take if you do not repay. In an ordinary cash account, by contrast, you pay the full price of what you buy.
Your equity is the part of the account that is truly yours: the market value of your securities minus what you owe the broker. Every margin rule is written in terms of equity, so it is the number to watch. Like any loan, margin charges interest, and "This interest directly reduces your return on investments" [1].
#What are the initial and maintenance margin rules?
There are two separate tests. The initial requirement controls how much you can borrow when you buy: "According to Regulation T of the Federal Reserve Board, you may borrow up to 50 percent of the purchase price of margin securities" [1]. Before trading on margin, FINRA requires a minimum deposit of $2,000 or 100% of the purchase price, whichever is less [1].
The maintenance requirement applies after you buy. FINRA rules require it "to be at least 25 percent of the total market value of the margin securities", and many firms set higher requirements, "typically between 30 to 40 percent" [1]. These firm-level minimums are called house requirements, and a firm can raise them — which can itself trigger a margin call [2].
| Rule | Requirement | Set by |
|---|---|---|
| Minimum to trade on margin | $2,000 or 100% of the purchase price, whichever is less | FINRA |
| Initial margin | Borrow up to 50% of the purchase price | Federal Reserve Board (Regulation T) |
| Maintenance margin | Equity of at least 25% of market value | FINRA |
| House maintenance | Often 30%–40%, sometimes higher | Each brokerage firm |
#How does margin magnify gains and losses?
The loan does not shrink when prices fall, so every move in the price lands entirely on your own money. Investor.gov's example: buy a stock at $50 and it rises to $75 — paid in full, that is a 50% return; bought with $25 of cash and $25 borrowed, it is a 100% return on your money [1]. If the stock instead falls to $15, the cash buyer loses 70%, while the margin buyer loses all $25 and "would also owe your broker an additional $10 plus the interest on the margin loan" [1].
Return on your own money: cash vs 50% margin
- Cash account
- 50% margin
#When does a margin call happen?
A margin call is a demand to add cash or securities because your equity has fallen below the requirement. FINRA lists three triggers: trades that create a margin deficit, a fall in the value of the account, and the firm raising its house maintenance requirement [2]. You can also meet a call by depositing fully paid securities, but because those securities carry their own requirement, you need more than the call amount; FINRA's example is a $6,000 house call met with $10,000 of stock that has a 40% requirement [2].
Worked example
Finding the margin-call price
You buy 200 shares at $50 ($10,000). You pay $5,000 and borrow $5,000 — the 50% Regulation T maximum. The loan stays at $5,000 while the price moves (interest ignored).
- Call level at 25% maintenance: value where equity = 25% ($5,000 ÷ 0.75)
- $6,666.67, or $33.33 a share
- Price drop that triggers it (1 − $6,666.67 ÷ $10,000)
- 33.3%
- Call level at a 40% house requirement ($5,000 ÷ 0.60)
- $8,333.33, or $41.67 a share
- Price drop that triggers it (1 − $8,333.33 ÷ $10,000)
- 16.7%
- If the price hits $30: value 200 × $30, equity $6,000 − $5,000
- $6,000 value; $1,000 equity (16.7%)
- Cash needed to reach 25% (0.25 × $6,000 − $1,000)
- $500
- Cash needed to reach 40% (0.40 × $6,000 − $1,000)
- $1,400
A fall of about one-third triggers a call under FINRA's minimum, but a firm with a 40% house rule calls after a fall of about one-sixth. Check your own firm's requirement, not just the regulatory floor.
Hypothetical figures calculated in Python. Firms may require more than the minimum shown, and may sell your holdings instead of waiting for a deposit.
#Can the firm sell your investments without asking?
Yes. Investor.gov warns that your broker "may not be required to make a margin call" and can sell your holdings without consulting you first [1]. FINRA adds that "A firm isn't required to notify you if your account equity drops below the minimum maintenance equity", that firms do not have to let you choose which securities are sold, and that they may pay off your whole margin loan rather than just meet the call [2]. A forced sale after a fall locks in the loss.
#What should you ask before opening a margin account?
Questions to answer first
Can I afford to lose more than I invest?
With margin, losses can exceed the money you put in, and you still owe the loan plus interest.
What is the interest rate, and how is it charged?
Interest is a cost you pay whether the investment rises or falls.
What is this firm's house maintenance requirement?
It may be well above FINRA's 25% minimum, and the firm can raise it.
Have I read the margin agreement?
The agreement sets out how the firm can sell your holdings and charge you. Ask the firm to explain anything unclear.
Do I need margin at all?
If you plan to buy and hold, a cash account removes the borrowing risk entirely.
Investor.gov lists similar questions, including whether you can afford losses beyond your initial investment and whether you know the firm can sell your securities without notice [1]. Margin also interacts with other protections: SIPC protects custody of assets if a firm fails, not losses from leverage — see SIPC protection explained.
Common beginner mistakes
Borrowing the maximum
Borrowing the full 50% leaves the least room before a call. A smaller loan gives more cushion, though it is still a loan.
Assuming you will get a warning
Firms may not be required to call you before selling. Plan as if a fall could trigger a sale at any time.
Ignoring interest
Interest accrues every day the loan is open and is charged even when the investment falls. It raises the price rise you need just to break even.
Using margin with money you need soon
Forced sales tend to happen after prices fall. Money for near-term needs belongs somewhere safer — see building an emergency fund.
What's the bottom line?
A margin account turns your brokerage account into collateral for a loan. US rules cap borrowing at 50% of the purchase price and require equity of at least 25% afterward, but firms often demand more, can sell without warning, and charge interest throughout. The result is magnified gains and magnified losses — sometimes beyond what you invested. Before borrowing, understand your own risk tolerance and time horizon.
Frequently asked questions
Can you lose more than you invest with margin?
Yes. Because the loan does not shrink when prices fall, a large enough drop can wipe out your equity and leave you owing the broker money plus interest, as Investor.gov's $50-to-$15 example shows.
Is a margin account the same as a cash account?
No. In a cash account you pay the full price of each purchase. In a margin account the firm can lend you part of the price, using your holdings as collateral.
Does my broker have to call me before selling?
Not necessarily. FINRA says a firm is not required to notify you when equity drops below the maintenance minimum, and it can choose which securities to sell.
Is the 25% maintenance requirement the most a firm can demand?
No. 25% is FINRA's minimum. Many firms set house requirements of 30% to 40% or more, and they can raise them.
Sources
Grade A = primary source (regulator, government agency, official rulebook or the index provider's own documents). Numbers in brackets in the text point here.
- U.S. SEC — Investor.gov. Investor Bulletin: Understanding Margin Accounts (2026). Accessed 2026-10-03.A
- FINRA. Know What Triggers a Margin Call (2026). Accessed 2026-10-03.A
- FINRA. Understanding the New Intraday Margin Requirements (2026). Accessed 2026-10-03.A
- FINRA. Regulatory Notice 26-10: FINRA Adopts New Intraday Margin Standards to Replace the Day Trading Margin Requirements (2026). Accessed 2026-10-03.A
This page is general education, not personal financial, tax or legal advice. Figures in worked examples are hypothetical and calculated before taxes and fees unless stated. Rules and limits change; check the linked primary sources for the current version. How we check every page.
