Initial Margin: The 50% Down Payment Under Regulation T

The order ticket reads buy 600 shares at $50, and the buying power figure beside it says you can afford the trade with $15,000 in the account. Both numbers are right. The gap between them is the loan, and the rule that decides its size is Regulation T, which the Federal Reserve Board writes and which caps what a broker may lend you against a fresh purchase of margin-eligible stock at half the price. You bring the other half.

Brokers can ask for more than half. Never less.

The sum on a $30,000 purchase

That $15,000 loan starts accruing interest the day the trade settles. If the broker’s house requirement on this stock were 60%, the deposit would rise to $18,000 and the loan would shrink to $12,000. The ticket would look identical.

Where it sits in the margin agreement

Look for the section on margin requirements. It usually says the firm follows the Federal Reserve Board’s Regulation T for initial purchases, then adds a sentence reserving the right to require more at its discretion, on any security, without notice. That second sentence is the one that matters in practice. It is how a broker can quote 50% on one stock and 100% on a recent listing or a thinly traded name, and how that number can change between the morning you research a trade and the afternoon you place it.

Opening a position, then living with it

Initial margin is a gate you pass once per purchase. The day after, a different test takes over: maintenance margin, the equity floor that FINRA sets lower and that your broker may raise. A position bought at exactly 50% has room to fall before the maintenance line bites. How much room depends on that second rule, and on how much of your buying power you used.

So the two work in sequence. One decides how big a loan you can take on day one. The other decides how much loss the account can absorb before the broker demands money or starts selling, which is the question most people should be asking first, because the loan size is easy to see on the ticket and the loss tolerance is not shown anywhere until it runs out.

Stock you have to pay for in full

Not everything can be bought with borrowed money. A broker keeps a list of securities it treats as non-marginable, and those carry an effective requirement of 100%: you pay the whole price in cash. Recent IPOs, very low priced shares and some thinly traded stocks often land there, though each firm draws its own line. Why a stock isn’t marginable covers the usual reasons.

Check before you trade. A buy order on a non-marginable stock has to be covered in cash.

Initial margin on a short sale

Shorting works differently. When you sell short, Regulation T requires the account to hold 150% of the sale value: the full proceeds, which stay in the account, plus an extra 50% of your own money.

The proceeds are collateral. You cannot spend them. Every short sale is a margin trade makes the longer case for why that changes how you size one.

What people get wrong

The most common misreading treats 50% as the most a broker will ask. It is the least. Another is reading “2x buying power” on the statement as permission to use all of it, when a position bought with the full loan is the one closest to a maintenance call on the first bad day. A third is assuming a stock that was marginable last month still is.

If you want to see how much loan a given deposit supports once house rules are in play, how much you can borrow on margin walks through it, and the opening lessons of Borrowed Money Has Teeth build the whole account from the first deposit.

Related terms

Maintenance margin is the ongoing floor. The special memorandum account records any excess over the Reg T requirement once a position gains. Leverage ratio tells you what fraction of the position is someone else’s money, and at 50% initial margin, the most you can reach on a single purchase is 2.0x.