Margin requirements are the minimum amounts of your own money you must put up when you buy securities with borrowed funds and keep in the account afterward. Federal Reserve Regulation T sets the initial deposit at 50% of the purchase price, and FINRA Rule 4210 requires you to hold at least 25% equity in the account for as long as the position is open. If your equity slips below the maintenance floor, your broker can sell your holdings to cover the shortfall, and it does not need your permission to do it.
The 50% Initial Deposit
Regulation T governs how much you have to contribute when you open a margin position. You must deposit at least 50% of the total purchase price in cash or eligible securities before the brokerage can lend you the rest.1eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers (Regulation T) Buying $20,000 of stock means putting up at least $10,000 of your own funds. The brokerage cannot extend credit for more than half the price of most common stocks listed on national exchanges.
The 50% figure is a federal floor, not a ceiling. Many firms set stricter initial requirements for certain securities or account types, so you may be asked to deposit more. Once the trade settles, the initial requirement stops applying and the ongoing obligation shifts to the maintenance rule.
The 25% Maintenance Floor
After the position is open, FINRA Rule 4210 requires you to keep equity equal to at least 25% of the current market value of the securities in your account.2FINRA. FINRA Rule 4210 – Margin Requirements If your portfolio is worth $10,000, the portion you own free of debt has to stay above $2,500. This is a continuous obligation for as long as you hold the position or owe borrowed funds.
Most brokerages set their own “house” requirements above the 25% FINRA minimum. These typically run 30% to 40% depending on the security and the firm.3U.S. Securities and Exchange Commission. Investor Bulletin: Understanding Margin Accounts The firm can raise its house requirement at any time without advance notice, so a margin call can be triggered even when prices have not moved, simply because the brokerage tightened its rule.
Minimum Account Equity to Trade on Margin
Before any of the percentage rules matter, you have to meet a flat-dollar threshold to open the account. FINRA requires a minimum deposit of $2,000, or 100% of the purchase price, whichever is less.3U.S. Securities and Exchange Commission. Investor Bulletin: Understanding Margin Accounts Some firms require more. You must keep the minimum met even during periods when your trades do not use your full margin buying power.
Pattern Day Traders Must Keep $25,000
A much higher threshold applies to frequent day traders. FINRA defines a pattern day trader as anyone who executes four or more day trades within five business days, provided those trades represent more than 6% of the account’s total trades in that period.4SEC.gov. Margin Rules for Day Trading Once classified as a pattern day trader, you must maintain at least $25,000 in the margin account at all times.5Investor.gov U.S. Securities and Exchange Commission. Pattern Day Trader If the balance drops below that level, you are restricted to closing existing positions until you bring the account back up or wait 90 days.
Your broker can also designate you as a pattern day trader if it has a reasonable basis to believe you intend to day trade, even before you hit the four-trade threshold.5Investor.gov U.S. Securities and Exchange Commission. Pattern Day Trader
What Happens When You Fall Below the Requirement
When equity falls below the maintenance level, the brokerage issues a margin call: a demand for additional cash or marginable securities to cover the shortfall. The deadline to respond can range from a few hours to several business days depending on market conditions and firm policy. You can also satisfy the call by selling holdings to reduce the borrowed amount.
The point many investors miss is that the brokerage can sell securities in your account without contacting you first. Under most margin agreements, the firm does not need your approval, and you have no right to choose which securities are sold or at what price.3U.S. Securities and Exchange Commission. Investor Bulletin: Understanding Margin Accounts Even when the firm offers you time to meet the call, it can still liquidate positions immediately if it decides that is necessary to protect itself.
A forced liquidation does not always end your obligation. If the sale proceeds fall short of what you borrowed, you still owe the brokerage the remaining balance. Your potential loss is not capped at the collateral you deposited; in a sharp enough decline you can end up owing money beyond what was in the account.
Higher Requirements for Short Sales and Volatile Securities
Short selling carries stricter requirements. Under Regulation T, opening a short position requires a total margin deposit of 150% of the shorted security’s current market value. The short sale proceeds themselves cover 100% of that, so you effectively put up 50% of the market value from your own equity.6Federal Reserve Board. Federal Reserve Board Legal Interpretations from 4/17/98
Maintenance requirements on short positions depend on share price. FINRA Rule 4210 sets these minimums:
- For stocks priced at $5.00 or above, the greater of $5.00 per share or 30% of current market value.
- For stocks priced below $5.00, the greater of $2.50 per share or 100% of current market value.
p>The tiered figures reflect the greater risk of low-priced stocks, where small price moves are large percentage swings.7FINRA. Guide to Updated Interpretations of FINRA Rule 4210 – Margin Requirements Because a short position has theoretically unlimited loss potential, brokerages often set house requirements well above these FINRA floors.
Non-Marginable Stocks and Leveraged ETFs
Not everything qualifies for margin. Stocks trading below $5 per share are widely classified as non-marginable, meaning you must pay the full purchase price upfront.8FINRA. Regulatory Notice 11-16 – Treatment of Non-Margin Eligible Equity Securities Even if you hold a non-marginable stock inside a margin account, Regulation T requires 100% of its market value as the initial deposit.
Leveraged ETFs carry maintenance requirements that scale with the fund’s leverage multiple. The general formula multiplies the standard maintenance requirement by the leverage factor, capped at 100%. For a 3x leveraged ETF, that produces a 75% requirement (25% × 3); for a 2x product, 50% (25% × 2).9Cboe. Margin Requirement for Leveraged ETFs and Uncovered Options Some brokerages require 100% equity for the most volatile leveraged products, effectively treating them as non-marginable.
Concentration Requirements
When a single security makes up an outsized share of your margin account, the brokerage may impose a concentration requirement, raising the equity threshold to push you toward diversification. Firms use risk modeling to identify when a concentrated position threatens account stability, and they can impose these requirements without advance notice.
Where Margin Is Not Allowed
Traditional and Roth IRAs cannot be used for margin borrowing. The IRS treats borrowing money from an IRA, or pledging IRA assets as collateral for a loan, as a prohibited transaction.10Internal Revenue Service. Retirement Topics – Prohibited Transactions Triggering a prohibited transaction causes the entire IRA to be treated as having distributed all its assets to you on the first day of that tax year, producing income tax on the full fair market value (minus your basis) and, if you are under 59½, likely a 10% early distribution penalty.
Some brokerages offer “limited margin” in IRAs, which lets you trade with unsettled funds or use certain options strategies without actually borrowing against the account. These arrangements are structured to stay within IRS rules by avoiding actual credit extensions. If your brokerage offers the feature, confirm the account terms do not involve pledging IRA assets as collateral.
Portfolio Margin for Larger Accounts
Experienced investors with larger accounts may qualify for portfolio margin, an alternative to the standard strategy-based rules. Instead of applying fixed percentages to each position, portfolio margin uses risk-based modeling across your whole portfolio, recognizing hedges and offsets between positions. For well-hedged or well-diversified holdings this can meaningfully reduce the required equity.
The minimum equity depends on the brokerage’s monitoring capabilities. FINRA allows a $100,000 minimum for firms with full real-time intraday monitoring, $150,000 for partial monitoring, and $500,000 when some or all trades are executed away from the carrying broker.11FINRA. Regulatory Notice 21-24 Attachment – FINRA Rule 4210 Accounts holding at least $5 million in equity are exempt from the pattern day trader restrictions that apply to standard margin accounts. Portfolio margin is not open to every investor; brokerages typically require options trading approval and may add their own eligibility criteria on top of the FINRA minimums.