In finance, margin is the gap between two values, and the word carries two very different meanings depending on context. In a brokerage account, margin is money you borrow from your broker to buy securities, using the securities themselves as collateral. On a company’s income statement, margin is the share of each revenue dollar that remains after subtracting costs. Both uses measure efficiency of a sort, but the mechanics, the rules, and the stakes are not the same, and treating them as interchangeable is how people get hurt.
Margin in a Brokerage Account
When you buy stock “on margin,” your brokerage lends you part of the purchase price and holds the shares as collateral for the loan. A cash account, by contrast, requires you to pay the full price out of pocket. Margin lets you control a larger position than your own cash would allow, which is why traders call it leverage.
The Federal Reserve’s Regulation T, codified at 12 CFR Part 220, sets how much a broker can lend for a securities purchase. For most stocks, the cap is 50% of the purchase price. If you want to buy $10,000 of stock, you need to put up at least $5,000 of your own money, and the broker finances the rest.1eCFR. Part 220 Credit by Brokers and Dealers (Regulation T) – Section: 220.12 Supplement Margin Requirements FINRA also requires a minimum equity deposit of $2,000 to open a margin account at all.
Because it is a loan, you pay interest on the borrowed balance for as long as the position stays open. Interest accrues daily and posts monthly, so costs compound on anything you hold for weeks or months. Rates vary by broker and by the size of the loan.
Why Margin Is Riskier Than Investing Cash
The important thing to grasp: you can lose more than you deposited. If the stock drops far enough, you still owe the broker the full loan plus interest. A steep decline on a fully margined position does more than wipe out your equity. It can leave you owing cash you never put in.
Brokers also have the right to sell securities in your account to cover a shortfall, without advance notice and without your consent.2FINRA. Margin Regulation Most firms issue a margin call first as a courtesy, but they are not legally required to. You cannot count on a phone call before your positions get liquidated.
Maintenance Margin and Margin Calls
Margin requirements come in two layers. The 50% deposit under Regulation T is the initial margin, the amount you need to open the trade. After that, a separate maintenance margin applies for as long as you hold the position.
FINRA Rule 4210 sets the maintenance minimum at 25% of the current market value of the securities in the account. That is the federal floor. Most firms set their own “house” requirements higher, commonly 30% to 40%, and can raise them at any time for volatile stocks or concentrated positions.3Financial Industry Regulatory Authority (FINRA). FINRA Rule 4210 – Margin Requirements – Section: (d) Additional Margin
A margin call happens when a drop in your portfolio pushes account equity below the maintenance level. The broker demands additional cash or securities to restore the required margin. Under FINRA’s rule, the deficiency must be resolved within 15 business days unless FINRA grants more time.4Financial Industry Regulatory Authority (FINRA). FINRA Rule 4210 – Margin Requirements – Section: (f)(6) Time Within Which Margin Must Be Obtained
That window is a maximum, not a promise. Brokers can set much shorter internal deadlines and can liquidate your holdings immediately to clear a deficiency.2FINRA. Margin Regulation Forced sales happen at prevailing market prices, which in a fast decline are often the worst available. You do not get to choose which positions go.
Futures Margin Is a Different Animal
Margin on futures contracts is not the same thing and should not be confused with stock margin. A futures margin deposit is a performance bond posted with the exchange’s clearinghouse to guarantee you can honor the contract. No credit is extended, so there is no interest charge on the deposit itself. Initial margin on a futures contract typically runs 2% to 12% of the contract’s notional value, compared with 50% for stocks. If the account drops below the maintenance level, the broker calls for enough funds to restore the full initial requirement.
The Pattern Day Trader Rule
Active trading in a margin account triggers a separate rule worth knowing before you start. If you make four or more day trades within five business days and those trades make up more than 6% of your total activity in the account over that period, FINRA classifies you as a pattern day trader.5FINRA. Day Trading That label comes with a $25,000 minimum equity requirement, and the money must be in the account before you resume day trading. If your balance slips below that line, the broker blocks further day trades until you deposit more.6FINRA.org. Margin Requirements (FINRA Rule 4210) – Section: Pattern Day Trading
In exchange, a pattern day trader gets up to four times maintenance margin excess in buying power, versus the standard two-times leverage under Regulation T.7U.S. Securities and Exchange Commission (SEC). Margin Rules for Day Trading Exceed that limit and the broker issues a day trading margin call, cutting your buying power back to two times excess for five business days while you resolve it.
How Margin Interest Is Taxed
Interest you pay on a margin loan is generally deductible as investment interest expense, but the deduction is capped. You can deduct investment interest only up to the amount of your net investment income for the year.8Office of the Law Revision Counsel. 26 USC 163 – Interest – Section: (d) Limitation on Investment Interest Net investment income includes interest, non-qualified dividends, and short-term capital gains. Qualified dividends and long-term capital gains are excluded unless you elect to treat them as ordinary investment income, which means giving up the lower tax rates those gains normally receive.
Interest that exceeds your net investment income is not lost. It carries forward indefinitely and can be deducted against investment income in future years. The deduction is claimed on IRS Form 4952, and you have to itemize to claim it. If you take the standard deduction, margin interest gives you no tax benefit.9IRS.gov. Form 4952 – Investment Interest Expense Deduction
Profit Margin on an Income Statement
The other meaning of margin has nothing to do with borrowing. In business accounting, margin measures how much of each revenue dollar survives after costs. Three layers reveal different things about a company’s finances.
Gross Profit Margin
Gross margin strips out only the direct cost of producing what the company sells: raw materials, manufacturing labor, cloud hosting for a software product. Subtract cost of goods sold from revenue, then divide by revenue. A software company with $1 million in sales and $200,000 in direct production costs has a gross margin of 80%, meaning 80 cents of every dollar is left to cover everything else. Technology and service businesses routinely post gross margins above 60%; grocery retailers and manufacturers often land in the 20% to 40% range.
Operating Profit Margin
Operating margin goes further by subtracting overhead such as rent, payroll, marketing, and administrative costs from gross profit. It shows how efficiently the company runs its day-to-day business. Strong gross margins paired with weak operating margins point to overhead eating the gains. Public companies break out operating income in their SEC filings, which makes this metric one of the easier ways to compare competitors in the same industry.
Net Profit Margin
Net margin is what remains after everything, including operating costs, interest on debt, and income taxes. Divide net income by revenue. The federal corporate tax rate of 21% takes a meaningful bite at this stage, and state corporate taxes push the combined effective rate higher.
What counts as a “good” net margin depends entirely on the industry. As of January 2026, semiconductor companies averaged roughly 30% net margins and software firms about 25%. General retail landed near 5.5% and grocery chains squeezed out around 1.3%. The overall U.S. market average was approximately 9.7%.10NYU Stern. Operating and Net Margins – Margins by Sector (US) Comparing a retailer’s 5% unfavorably against a software company’s 25% misunderstands what the number measures. Each industry has a fundamentally different cost structure.
Net Interest Margin at a Bank
Banks have their own margin figure. They earn money on the spread between what they charge borrowers and what they pay depositors. Net interest margin captures that spread as a percentage: subtract interest expenses from interest income, then divide by average earning assets. The calculation deliberately leaves out non-interest revenue like service fees to isolate the profitability of core lending.
As of the fourth quarter of 2025, the industry-wide net interest margin was 3.39%, its highest level since 2019.11FDIC. FDIC Quarterly Banking Profile Fourth Quarter 2025 Over the past three decades, aggregate commercial bank margins have moved between roughly 3% and 4.5%.12Board of Governors of the Federal Reserve System. Changes in Monetary Policy and Banks Net Interest Margins – A Comparison across Four Tightening Episodes The FDIC watches these figures as part of its judgment on whether a bank is earning enough to absorb losses and keep adequate capital.13Federal Deposit Insurance Corporation. Section 5.1 Earnings