TL;DR. Buying on margin means borrowing money from your broker to buy more securities than your cash alone could afford. The Federal Reserve sets the day-one borrowing limit at 50% of the purchase price under Regulation T. After that, FINRA Rule 4210 requires you to keep at least 25% equity in long positions, and your broker usually requires more. Cross the line and you get a margin call — or, just as often, no call at all and a forced sale instead.
What “margin” actually means
A margin account is a brokerage account where the broker lends you part of the purchase price for a security, using the securities themselves as collateral. The loan is called the debit balance. The portion of the account that is actually yours — market value minus debit — is your equity.
Margin is not a separate product you opt into one trade at a time. Once you sign the margin agreement, every eligible position you buy can be margined automatically, and every position in the account can be pledged as collateral against the loan. That last part is what catches most retail investors off guard.
The two numbers that control your account
There are two distinct margin requirements, and conflating them is the single most common mistake.
- Initial margin is the rule for the day you buy. Under the Federal Reserve’s Regulation T, brokers can lend customers up to 50% of the price of a margin equity security. So if you want to buy $10,000 worth of stock, you must put up at least $5,000 of your own money; the broker can lend the other $5,000.
- Maintenance margin is the rule for every day after. FINRA Rule 4210(c)(1) requires that the equity in a long margin account stay at or above 25% of the current market value of the securities. Short positions have a separate, tighter schedule.
On top of the regulatory floor, every broker layers its own house maintenance requirement — usually 30%-40% for ordinary stocks, sometimes 50%-100% for volatile or low-priced names. That broker number is the one that almost always triggers real-world margin calls.
| Type | Who sets it | Minimum requirement | What it controls |
|---|---|---|---|
| Initial margin | Federal Reserve (Reg T) | 50% of purchase price | How much you must put up when you buy |
| Maintenance margin (long) | FINRA Rule 4210 | 25% of current market value | How low your equity can fall before a margin call |
| Maintenance margin (short, ≥ $5) | FINRA Rule 4210 | $5/share or 30% of value, whichever is greater | Cushion required on short equity positions |
| Maintenance margin (short, < $5) | FINRA Rule 4210 | $2.50/share or 100% of value, whichever is greater | Tighter rule for low-priced shorts (squeeze risk) |
| House requirement | Your broker (above FINRA floor) | Often 30%-40% for liquid stocks; higher for volatile names | The number that actually triggers your margin call in practice |
A worked example: how equity erodes when the stock falls
Suppose you buy 100 shares of a $100 stock — $10,000 total — in a margin account. You deposit $5,000 in cash and borrow $5,000 from your broker. That satisfies Reg T’s 50% initial margin. Now follow the math as the stock drops:
- At $100, market value is $10,000, debit is $5,000, your equity is $5,000 — 50%.
- At $75, market value is $7,500, debit is still $5,000, equity is $2,500 — 33%. Above the 25% line, so you’re fine on the FINRA floor.
- At $66.67, market value is $6,667, debit is still $5,000, equity is $1,667 — 25%. You’ve just hit FINRA’s maintenance line.
Two things to notice. First, a 33% drop in the stock is what it takes to hit the regulatory 25% maintenance line when you start at 50%. The general rule: critical price = original price × (1 − initial%) / (1 − maintenance%). With Reg T initial of 50% and a house maintenance of 30%, the danger zone starts at a 29% drop. With a 35% house requirement, just a 23% drop will do it.
Second, the debit doesn’t shrink as the stock falls — only your equity does. The broker’s loan is fixed in dollars, so every dollar the stock loses is a dollar off your equity. That asymmetry is what makes leverage cut both ways.
Source: Illustrative calculation using Reg T 50% initial and FINRA 25% maintenance requirements.
The margin call: what it is, what it isn’t
A margin call is a demand from your broker to restore your account to the maintenance requirement. You typically have three ways to satisfy it:
- Deposit cash. Adds to equity dollar-for-dollar.
- Deposit additional marginable securities. Increases both market value and equity, but only counts as collateral net of the broker’s haircut.
- Liquidate positions. Sells securities to pay down the debit balance. Equity stays the same but market value drops, so equity percentage rises.
Here is the part most retail investors only learn the hard way: brokers are not required to call you first. FINRA’s investor guidance is explicit that “brokers, at their discretion, may liquidate an account at any time to eliminate a margin deficiency” (FINRA, Margin Accounts). In fast markets, brokers routinely sell positions without warning. The margin agreement you signed gave them that right.
They also choose which positions to sell. If you have ten holdings and three are deeply liquid blue chips while seven are illiquid small caps, the liquid names usually go first — because that’s what they can actually sell at a fair price. Investors who hoped their losers would be cut and their winners spared often discover the opposite.
Where margin breaks: the cascade problem
Leverage is not just amplified return. It is amplified forced selling. When many investors are levered against the same kinds of assets, a drop big enough to trigger one round of margin calls forces selling, which deepens the drop, which triggers the next round of calls. This is why every major leverage blowup — Long-Term Capital Management in 1998, the quant quake in August 2007, the Volmageddon of February 2018, the Archegos collapse in March 2021 — looked like a vertical waterfall on the chart of the affected names.
The Archegos episode is a textbook case: Bill Hwang’s family office had concentrated, total-return-swap-based positions financed through multiple prime brokers. When one stock dropped, the call went out, the prime brokers raced to liquidate first, and roughly $20 billion in equity was wiped out across a handful of names in days, with the lenders themselves losing more than $10 billion (SEC press release). Nothing about the underlying companies had changed. It was pure forced de-grossing.
Margin today: a record borrowing pile
FINRA publishes monthly customer margin debit balances from its member firms, which is the closest thing the U.S. market has to a real-time leverage thermometer. As of April 2026, the total stood at $1.30 trillion, up from $851 billion a year earlier — a 53% jump in twelve months and a fresh record (FINRA Margin Statistics).
Source: FINRA Margin Statistics, debit balances in customers’ securities margin accounts.
High debit balances do not by themselves tell you a crash is coming — they tend to rise with the market because rising collateral creates rising borrowing capacity. But they do tell you how much fuel is sitting next to the match. When the market does turn, the cascade math above gets to work on a much larger pile of leverage.
Common mistakes
- Confusing initial and maintenance margin. Reg T governs the day you buy. FINRA Rule 4210 and your broker’s house number govern every day after. You can pass the first test and fail the second.
- Assuming the broker will call before selling. They are not required to. Read the margin agreement — the relevant clause usually reads that the firm may sell “without prior notice or demand.”
- Ignoring house requirements on volatile names. A stock’s house margin can be 100% (no margin allowed) right when you want to use leverage. Brokers raise house margins ahead of earnings and after big moves precisely because that’s when they expect calls.
- Treating dividends and interest as free money. If your dividend yield is 2% and your margin loan rate is 12%, you are paying 10% per year to hold dividend stocks on margin. The broker’s margin rate is rarely small.
- Pattern-day-trader confusion. If FINRA classifies you as a pattern day trader (four or more day trades in five business days, in a margin account), you must keep at least $25,000 in equity at all times under FINRA Rule 4210(f)(8)(B), or your day-trading buying power is suspended.
What to learn next
Margin is the foundation under a lot of more advanced concepts. The natural next steps are portfolio margin (risk-based margining that often gives more buying power for hedged options accounts), short selling mechanics (which sit entirely inside the margin framework), options margin (which has its own Reg T and FINRA tables), and the plumbing of stock lending (where the shares you bought on margin go after you buy them).
Sources
- FINRA — Margin Accounts (Reg T 50% rule, broker liquidation rights)
- FINRA Rule 4210 — Margin Requirements (25% long, $5/30% short)
- FINRA Margin Statistics — Monthly customer debit balances
- Federal Reserve Board — Regulation listing (Reg T cross-reference)
- SEC Press Release — Archegos charges (2022)
Disclosure: This article was produced with AI assistance and reviewed before publication. It is for informational purposes only and is not investment advice.