Free course · Margin & Leverage · Beginner
Borrowed Money Has Teeth: Margin Accounts, Interest and Margin Calls
A free margin trading course that reads the margin agreement the way a lender wrote it: a loan secured by your shares, charged by the day, with a price at which the broker starts selling.
Who it is for
Investors about to switch on margin, or already borrowing, who want to know what the loan costs and where the margin call sits.
By the end you can
- Read the clauses in a margin agreement that let the broker sell, raise requirements and lend your shares
- Work out your equity at any share price and how far it moves when the stock moves
- Turn a quoted margin rate into a dollar cost for a day, a month and a year
- Find the shortfall in a margin call and how much stock a sale would need to cover it
- Size a margin loan so that a fall you choose in advance does not trigger a call
The lessons
- I How a Margin Account Works: Collateral, the Loan and Your Equity
How a margin account works, from the agreement's clauses to the equity sum: what the broker lends, what it can do with your shares and why losses grow.
About 12 minutes, with a quiz at the end
- II What Margin Interest Costs Over a Day, a Month and a Year
How much margin interest costs in dollars: the daily accrual on a 360-day year, what a month and a year add up to, and the gain a position needs to cover it.
About 12 minutes, with a quiz at the end
- III Margin Calls, From the First Notice to a Forced Sale
What happens in a margin call, step by step: what triggers it, how to work out the shortfall, how much stock a sale must cover and what the broker may do.
About 14 minutes, with a quiz at the end
- IV Sizing a Margin Position So It Survives a Bad Month
How much margin to use, worked backwards: pick the fall a position must survive, solve for the largest loan, then leave a buffer for gaps and house increases.
About 12 minutes, with a quiz at the end
Somewhere in a margin agreement, usually in a paragraph set in capital letters, the broker keeps the right to sell securities in your account without calling you first. It is easy to sign without ever reaching it. The lessons start from the agreement and stay close to it, because every figure that matters later follows from what the document lets the lender do, and a borrower who knows those terms can work out in advance what a bad week will cost.
Who it suits
Someone about to tick the margin box on an application. Someone already borrowing who has never worked out where the call sits. No finance background is needed, although you should be comfortable with a calculator, since each lesson turns a percentage into dollars on a hypothetical account and shows the working line by line so you can repeat it later with the balances on your own statement.
What to have open
Keep the margin agreement beside you, with the broker’s margin rate table and the page listing its house maintenance requirements. Those documents change. The rate table is often posted publicly, and the agreement comes with the account application, so you can read both before you borrow a dollar.
If you already carry a loan, pull up the latest statement too. The debit balance on it is the loan.
How to work through it
Take the lessons in order, since each one leans on the last. The first builds equity from the loan and the market value, the second puts a daily price on carrying that loan, the third shows what happens when equity drops below the broker’s floor, and the last runs the arithmetic backwards to choose a loan small enough that a bad month passes without a forced sale. A short quiz closes each lesson.
Redo every sum with your own numbers. That’s the part that sticks.
The initial margin and maintenance margin entries are worth a read first if the terms are new.
What it leaves out
Portfolio margin is missing on purpose. It sets requirements from a risk model applied to the whole account, is usually limited to larger accounts, and needs a course of its own. Futures margin is left out too, since it works as a performance bond with its own exchange rules. So are specific broker rates. They vary by firm and move whenever the broker resets its base rate, so the examples run on hypothetical ones and your own figure comes from the rate table.
Where to go after
The margin call calculator takes the formula from the later lessons and runs it on any position you type in. For the case that margin deserves the caution you give any loan, read treat margin as a loan before you treat it as buying power. And once the borrowing is under control, the companion course on risk rules that protect trading capital covers how much of the account a single trade should put at stake.
Readers also ask
Do you need a margin account to follow the lessons?
No. Every example runs on a hypothetical account with round numbers, so a pen and a calculator are enough. If you are only thinking about margin, ask a broker for its margin agreement and rate table before you apply, and read them alongside the lessons.
Is margin trading a good idea for beginners?
That depends on the size of the loan against the account and on whether you know the price that triggers a call. A small loan with a known call price and a cash reserve behaves very differently from a maximum loan on a single volatile stock. Situations differ, and the lessons give you the arithmetic to judge your own.