Section
Margin & Leverage
A margin account lends you money against the securities you hold. Here is what the loan costs, where the margin call sits, and what borrowing does to a trade that goes wrong.
Two rules sit under every margin account. The Federal Reserve Board's Regulation T sets how much of a purchase you must put up at the start, and FINRA sets the minimum equity you have to keep once the position is open. Brokers are free to demand more than either, and many set a house requirement above the FINRA floor, so the number that matters for your account is the one in your own margin agreement.
Leverage works in both directions at the same speed. A loan that doubles your position doubles the percentage your equity moves, and the interest runs every day whether the trade is winning or not. Work out the margin call price before you buy. The margin call calculator does it for a long or a short position, and the margin interest calculator turns a quoted annual rate into dollars for the days you actually hold.
Free courses
All courses →Beginner · free
Borrowed Money Has Teeth: Margin Accounts, Interest and Margin CallsInvestors about to switch on margin, or already borrowing, who want to know what the loan costs and where the margin call sits.
Columns
All columns →Argument
Every Short Sale Is a Margin Trade, Whether It Feels Like One or NotSize every short from its margin call price, and plan as if the price has no ceiling, because it does not.
Argument
Treat Margin as a Loan Before You Treat It as Buying PowerRead margin the way the agreement writes it: a loan charged interest daily, from a lender allowed to sell your shares.
Ledger
Your Margin Call Price Is a Number You Can Work Out TodayWork out the margin call price when the trade is placed, write it in the plan, and put your stop above it so the broker never decides.
Answers
- How Much Can You Borrow on Margin, and Who Sets the Limit?
- How Do You Avoid a Margin Call Before One Arrives?
- Is Margin Interest Tax Deductible? Form 4952 and the Income Limit
- Is Trading on Margin Worth the Interest? A Break-Even Test
- Leveraged ETF vs Margin: Two Ways to Hold 2x Exposure
- Portfolio Margin vs Reg T: How the Requirement Is Set
- Securities-Based Line of Credit vs Margin Loan
- Margin Loan Repayment: How to Pay Down a Margin Debit
- Margin Loan vs Personal Loan: Cost, Collateral and Risk
- Stock Margin Analyzer: How to Check a Margin Account
- Stock Margin Requirements: Check One Before You Borrow
Concepts
- Initial margin
The portion of a margin purchase you must pay with your own equity when the position is opened, set at a minimum of 50% for margin-eligible stock by the Federal Reserve Board's Regulation T.
- Leverage ratio
The total market value of the positions in an account divided by the account's equity, showing how many dollars of exposure each dollar of your own money carries.
- Maintenance margin
The minimum equity, as a percentage of the market value of the securities, that a margin account must keep after purchase; FINRA Rule 4210 sets the floor and brokers may require more.
- Margin call
A demand from a broker to restore equity in a margin account to the required level, by depositing cash or marginable securities or by selling positions, issued when the account falls below an initial or maintenance requirement.
- Margin interest
The interest a broker charges on the debit balance in a margin account, usually accrued daily at an annual rate set by the firm and posted to the account once a month.
- Special memorandum account
A Regulation T record kept alongside a margin account that tracks excess equity above the initial requirement, which can be used as buying power or withdrawn, subject to the maintenance requirement.
Quizzes
- Stress Test the Account: A Margin and Leverage Quiz
Whether you can work out what a fall does to margin equity, where the call price sits, what the loan costs and how much to sell to meet a call.
Calculators
- Margin Call Calculator
The share price that triggers a margin call on a long or short position, from your loan and the maintenance requirement.
- Margin Interest Calculator
Interest on a margin loan by the day, the month and the holding period, and the return a trade needs to cover it.
- Leverage Calculator
Your leverage ratio from equity and position value, and what a given market move does to your equity.