A margin call is your broker’s demand that you deposit additional cash or securities because the equity in your margin account has fallen below the required minimum. It happens when the market value of your holdings drops (or, for a short position, rises) far enough that the collateral backing your broker’s loan is no longer sufficient. You typically have a few business days to respond, and if you don’t, the broker can sell your positions without asking you first.
How Margin Accounts Work
When you buy securities on margin, you’re borrowing part of the purchase price from your broker, and the securities themselves serve as collateral. Federal Reserve Board Regulation T requires you to put up at least 50% of the purchase price for most equity securities.1FINRA. Margin Regulation Buying $20,000 of stock means depositing at least $10,000 of your own money and borrowing the other $10,000.
After you buy, a second rule takes over: the maintenance margin requirement. FINRA Rule 4210 sets the floor at 25% of the current market value of your long securities.2FINRA.org. 4210. Margin Requirements Most brokerages set their own “house” requirement higher, typically between 30% and 40%, and that stricter number is what actually governs your account day to day.
Your equity is the current market value of your securities minus the loan balance. As prices fall, the loan stays the same, but your equity shrinks. Once your equity slips below the maintenance threshold, a margin call is triggered.
What Triggers a Margin Call
The trigger is arithmetic. Divide the loan amount by (1 minus the maintenance percentage) to find the market value at which the call fires. On the $20,000 purchase with a $10,000 loan and a 25% maintenance requirement, that’s $10,000 รท 0.75 = $13,333. Below that value, your equity is less than 25% of the position, and you’re in violation.
The size of the call is the required equity minus your actual equity. If the stock has dropped to $13,000, the required equity is $3,250 (25% of $13,000), and your actual equity is $3,000 ($13,000 minus the $10,000 loan). The call is $250.
A “house call” uses the same math with the broker’s stricter percentage, so it fires at a higher stock price and reaches you sooner. Brokers can also raise house requirements at any time without warning, which occasionally produces calls in an otherwise quiet market.3eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers (Regulation T)
Margin interest works quietly in the same direction. Interest accrues daily on the loan balance and is charged monthly, and because those charges increase what you owe, they reduce your equity. Over enough time, accruing interest can push a position toward a call even without a price move.
Different Securities Have Different Maintenance Levels
The 25% figure applies to long equity positions. Other securities carry their own requirements under FINRA Rule 4210:
- Investment-grade bonds: 10% of current market value.
- Other listed debt securities: 20% of market value or 7% of principal, whichever is greater.
- Short stock options: 100% of the option’s current market value plus a percentage of the underlying stock’s value.
- Long options expiring in more than nine months: 75% of the option’s market value.
A portfolio mixing stocks, bonds, and options can generate calls from multiple positions at once.2FINRA.org. 4210. Margin Requirements
How to Respond to a Margin Call
You have three ways to bring equity back above the maintenance level.
Deposit cash. The most direct route. Every dollar you deposit increases equity by exactly one dollar and reduces the loan balance. A $1,000 call takes $1,000 in cash.
Deposit fully paid securities from another account. Only a portion of the security’s value counts toward the requirement, so you need to deposit more market value than the call amount. If the deposited security has a 50% margin requirement, satisfying a $1,000 call takes $2,000 of that security. The formula is the call amount divided by (1 minus the margin requirement for that security).
Sell existing holdings. Often the fastest option when outside cash isn’t sitting ready. The sale proceeds pay down the loan, which shrinks both the market value and the debt and improves your equity percentage. The trade-offs are real: you’re locking in losses (or realizing gains that trigger tax) on positions you might have preferred to keep.
How Long You Have
For initial margin deficiencies under Regulation T, the payment period is the standard settlement cycle plus two business days. With today’s one-business-day settlement, that’s three business days.4FINRA. 2025 Extensions of Time Filing Schedule For maintenance calls, the deadline is at the broker’s discretion, and brokers can demand immediate payment. In practice, most allow two to five business days, but that leniency shrinks fast in volatile markets.
If truly exceptional circumstances prevent timely payment, your broker can apply to its examining authority for a limited extension before the deadline expires.3eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers (Regulation T) You can’t request one yourself, and it isn’t something to plan around.
What Happens If You Don’t Meet the Call
Miss the deadline and the broker starts selling. Regulation T requires it: if the call isn’t satisfied within the payment period, the broker must liquidate enough securities to eliminate the deficiency.3eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers (Regulation T)
Two points catch investors off guard. First, the broker doesn’t have to call you before it sells. Most margin agreements explicitly waive any obligation to give notice. Second, the broker chooses which positions to close. It will pick what protects its loan, not what preserves your tax situation or your best-performing holdings. Any losses from the forced sale are yours, and you’re on the hook even if the sale hits at a bad moment in the market.
Expect account restrictions afterward. Brokers often impose a permanently higher house maintenance requirement on the account, limit trading to cash-only for a period, or restrict your ability to re-establish margin positions.
Tax Fallout, Including the Wash Sale Trap
A forced sale is a taxable event like any other. The IRS treats it as a disposition of property, and you recognize a capital gain or loss based on the difference between sale proceeds and adjusted cost basis.5Internal Revenue Service. Publication 544, Sales and Other Dispositions of Assets Positions held a year or less produce short-term results taxed at ordinary income rates.
The wash sale rule is where forced liquidation stings hardest. If you sell securities at a loss and acquire substantially identical securities within 30 days before or after the sale, the loss is disallowed.6Office of the Law Revision Counsel. 26 U.S. Code 1091 – Loss From Wash Sales of Stock or Securities The statute reaches “any sale or other disposition,” with no carve-out for involuntary sales.
The scenario to watch: the broker force-sells 200 shares at a loss to cover the call, and you still hold 500 shares of the same stock in the account, in an IRA, or in your spouse’s account. The rule applies across all your accounts. The loss is disallowed and added to the cost basis of the remaining shares. You still owe tax on any gains the forced sale produced in other positions, but you can’t deduct the losses on the one the broker chose to sell.
Margin Calls on Short Positions Work in Reverse
Shorting a stock means borrowing shares, selling them, and hoping to buy them back cheaper. A call on a short position is triggered when the stock rises, because buying the shares back costs more and your equity shrinks.
The maintenance requirement for short equity positions is typically 30%, higher than the 25% floor for long positions. If a dividend is paid on a stock you’re short, you owe that dividend to the lender of the shares, and the payment comes out of your account equity.7U.S. Securities & Exchange Commission. Key Points About Regulation SHO A dividend announcement can nudge you toward a call even without a price move.
Because there’s no ceiling on how high a stock can go, the theoretical loss on a short is unlimited. Brokers tend to enforce short-position calls aggressively, sometimes demanding immediate deposits or liquidating with little warning.
The Pattern Day Trader $25,000 Rule
A separate type of margin call applies if your broker classifies you as a pattern day trader, meaning you execute four or more day trades within five business days and that activity is more than 6% of your total trades. Pattern day traders must keep at least $25,000 in equity in the margin account at all times. Fall below that number and you’ll get a call that restricts day trading until the balance is restored.