Margin is borrowed money your broker lends you to buy more stock than you could pay for in cash

When you buy stock on margin, you put down part of the purchase price yourself and borrow the rest from your broker. The stock you buy serves as collateral for the loan. For example, if you have $5,000 and want to buy $10,000 worth of stock, you might borrow $5,000 from your broker at an interest rate they set. You now own the full $10,000 position, but you owe the broker money plus interest.

Margin amplifies both gains and losses. If that $10,000 stock position rises to $12,000, your $5,000 investment has doubled in value — a 100% return. But if it falls to $8,000, you have lost $2,000 of your own money on a $5,000 investment — a 40% loss. The borrowed portion does not change, but the value of what you own does.

Your broker sets the terms: how much you can borrow (usually 50% of the stock's value for most stocks), what interest rate you pay, and what happens if your account value drops too far. These terms vary by broker and by the stock itself.

Key Takeaways

  • Margin is a loan from your broker that lets you buy more stock than your cash alone would cover, with the stock itself as collateral.
  • Gains and losses are magnified because you control a larger position with a smaller amount of your own money.
  • Your broker charges interest on the borrowed amount and can force you to sell positions if your account value falls below their minimum requirement.
  • Margin calls happen when your account equity drops below the maintenance level, and you must deposit cash or sell stock when ready or your broker will sell for you.
  • Not all stocks can be bought on margin, and brokers set different borrowing limits based on the stock's volatility and liquidity.

How much can you borrow, and what does it cost

The initial margin requirement is the minimum amount of your own money you must put down when you open a margin position. The Federal Reserve sets this at 50% for most stocks, meaning you can borrow up to 50% of the purchase price. Your broker may require more — some require 60% or 70% down — but cannot require less.

Once you own the position, the maintenance margin requirement is the minimum percentage of your account that must be your own equity. The Federal Reserve sets this at 25%, but most brokers require 30% to 40%. If your account falls below this level, your broker issues a margin call.

You pay margin interest on the borrowed amount. This rate varies by broker and changes based on how much you borrow and current market conditions. Rates typically range from 6% to 12% per year, charged daily or monthly depending on your broker. The interest accrues whether your position gains or loses money.

What happens when a margin call occurs

A margin call is a demand from your broker that you deposit cash or sell stock to bring your account back above the maintenance level. This happens when the value of your positions falls and your equity shrinks below the threshold.

Example: You buy $10,000 of stock with $5,000 of your own money and $5,000 borrowed. Your broker's maintenance requirement is 30%. If the stock falls to $7,000, your equity is now $2,000 — which is 28.6% of the position. This is below 30%, so you receive a margin call. You must deposit $400 in cash or sell stock to raise your equity back to at least $2,100 (30% of $7,000). Your broker typically gives you one to five business days to meet the call, depending on their policy.

If you do not meet the margin call, your broker will sell your positions without asking your permission. They sell enough to bring your account into compliance, and you absorb any losses. You also pay the broker's transaction costs and any losses from forced selling at unfavorable prices.

Which stocks can be bought on margin

Not every stock qualifies for margin borrowing. Your broker maintains a list of marginable securities — stocks that meet liquidity and stability standards. Large-cap stocks on major exchanges (like those in the S&P 500) are almost always marginable. Penny stocks, newly listed stocks, and highly volatile stocks are often not.

Even if a stock is marginable, your broker may set a lower borrowing limit for it. A volatile stock might allow only 30% borrowing instead of the standard 50%. You can check your broker's marginable list in your account settings or by calling their support line.

Some stocks are non-marginable entirely. If you want to buy them, you must pay in full with cash. Attempting to buy a non-marginable stock on margin will be rejected at the order stage.

The difference between day trading margin and regular margin

Regulation T margin is the standard margin account used for longer-term positions. It has the 50% initial requirement and 25% to 40% maintenance requirement described above.

Day trading margin applies if you make four or more round-trip trades (buy and sell the same security) within five business days. The Financial Industry Regulatory Authority (FINRA) requires day traders to maintain a minimum account balance of $25,000 and allows them to borrow up to 4:1 on intraday positions — meaning you can control $4 for every $1 you have. This higher leverage is only available during the trading day; overnight positions revert to standard margin rules.

If your account falls below $25,000, you lose day trading privileges and cannot open new margin positions until you deposit cash to reach $25,000 again.

Real risks that margin creates

Margin trading can wipe out your account faster than you might expect. A 50% drop in a stock you bought on 50% margin (with 50% borrowed) erases your entire investment. A 67% drop leaves you owing your broker money even after the stock is sold.

Forced selling during a margin call locks in losses at the worst time. You do not get to choose which positions to sell or when to sell them — your broker does. If you hold a stock you believe will recover, a margin call may force you to sell it at a loss to meet the call.

Interest costs compound. If you hold a margin position for months or years, the interest you pay can significantly reduce your returns or increase your losses. A position that gains 8% per year might net only 2% after paying 6% margin interest.

Market stress amplifies losses. During sharp market declines, margin calls often come all at once, forcing many traders to sell simultaneously. This can drive prices down further and make it harder to exit positions at reasonable prices.

How to use margin responsibly

Treat margin as a tool for specific situations, not as a way to invest more money than you have. Conservative traders use margin only when they have a clear reason and a plan to repay the loan quickly.

Set your own margin call threshold well above your broker's requirement. If your broker requires 30% maintenance, decide to close positions if your equity falls to 40% or 50%. This buffer protects you from forced selling and gives you time to act on your own terms.

Never borrow the maximum your broker allows. If you can borrow 50%, consider borrowing only 25% or 30%. The smaller the loan, the larger the price move needed to trigger a margin call.

Understand the interest cost before you borrow. Calculate how much interest you will pay over the time you plan to hold the position. If the expected gain is smaller than the interest cost, margin does not make sense.

Have a cash reserve outside your margin account. If a margin call comes, you should be able to deposit cash without selling positions. This gives you control over which trades to close and when.

Frequently Asked Questions

Can I lose more money than I invested if I use margin?

Yes. If a stock falls far enough, you can owe your broker money even after your position is sold. For example, if you buy $10,000 of stock with $5,000 borrowed and the stock becomes worthless, you still owe the $5,000 plus interest. Your broker will pursue collection. This is why margin is considered high-risk.

What is the difference between a margin account and a cash account?

A cash account requires you to pay for all purchases in full before settlement (usually two business days). A margin account lets you borrow from your broker. Cash accounts have no margin calls and no interest charges, but you cannot buy more than your cash balance allows. Most active traders use margin accounts; conservative investors often prefer cash accounts.

Do I have to use margin if I open a margin account?

No. You can open a margin account and never borrow. You can buy stocks with cash and hold them without owing anything. The margin account straightforward gives you the option to borrow if you choose to. You only pay interest on money you actually borrow.

How quickly do I have to meet a margin call?

Your broker typically gives you one to five business days, depending on their policy. Check your account agreement or call your broker to learn their specific timeline. If you miss the important date, your broker will sell positions without your permission to meet the call.

Can my broker change the margin requirements on my positions?

Yes. Your broker can raise maintenance requirements or remove a stock from the marginable list at any time. If this happens and your account falls below the new requirement, you will receive a margin call. This is rare for stable stocks but common for volatile or illiquid stocks during market stress.