A margin balance is the amount you owe your brokerage, or hold as available credit, in an account that lets you borrow money against your securities to buy or sell more of them. Federal rules require you to put up at least 50 percent of a purchase price when you first buy on margin, and to keep equity of at least 25 percent of your portfolio’s market value at all times after that. When the balance drifts past those thresholds, the firm can demand more cash or sell your holdings without asking first.
Debit Balances and Credit Balances
A margin balance takes one of two forms on your statement.
A debit balance shows up when you borrow from the brokerage to buy securities. It is a loan. It accrues interest daily and appears as a negative cash figure, meaning the firm is financing part of your portfolio.
A credit balance means the account holds uninvested cash or proceeds from a short sale. If you short a stock, the sale proceeds land in the account as a credit, but you generally cannot withdraw them; they serve as collateral for the shares you borrowed. Short sale credit balances are reported separately from free cash and are not available for spending.
How Your Equity Moves With the Market
Your total account equity equals the current market value of all long positions minus your debit balance. Prices rise, equity rises, and the debit stays roughly flat aside from daily interest. Prices fall, equity shrinks, and the loan takes up a larger share of the account. That shrinking equity share is what eventually triggers a margin call.
Brokerages check the numbers at the close of each trading day through a process called marking to the market. The firm recalculates every position’s value and compares your equity percentage to the required minimum.
Interest on a Debit Balance
Brokerages charge interest on your debit balance daily and post the running total to the account once a month. The rate is typically a base rate, often linked to the federal funds rate, plus a spread that shrinks as the loan grows. At one major brokerage, the base rate was 10 percent as of late 2025, with effective rates ranging from roughly 10 percent for balances above $250,000 to nearly 12 percent for balances under $25,000.1Charles Schwab. Margin Requirements and Interest Rates Rate structures vary from firm to firm, so comparing schedules before opening an account is worth the time.
Because interest compounds daily, even a small loan grows noticeably over months of holding. Any position bought on margin has to outperform the borrowing cost before it produces a net profit.
The 50 Percent Initial Requirement
The Federal Reserve’s Regulation T, at 12 CFR Part 220, sets the rules for how much you can borrow when you first open a margin position. For most equity securities, you must deposit at least 50 percent of the purchase price; the remaining 50 percent can come from the broker’s loan.2eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers (Regulation T)
After you place the trade, you have a limited window, currently three business days from the trade date, to deposit the required funds.3FINRA. Know What Triggers a Margin Call Your broker can shorten that window or require a bigger initial deposit than the 50 percent floor. If you miss the deadline and no extension is granted, the firm must liquidate assets to cover the shortfall.
The 25 Percent Maintenance Floor
Once positions are open, the focus shifts to keeping the balance above the maintenance line. FINRA Rule 4210 requires that your equity never fall below 25 percent of the current market value of all margin securities held long in the account.4FINRA. FINRA Rule 4210 – Margin Requirements
Many brokerages set their own house requirements higher, commonly 30 to 40 percent, to build in a safety buffer.5SEC.gov. Understanding Margin Accounts Firms can raise those house requirements at any time without giving you advance written notice.3FINRA. Know What Triggers a Margin Call A change in house policy can put your account into deficit even if the market has not moved.
What Happens When the Balance Falls Short
A margin call happens when your equity slips below the required maintenance percentage. The usual cause is a drop in the market value of your holdings, but a call can also come from a firm raising its house requirements on securities you own.3FINRA. Know What Triggers a Margin Call
A quick example. Say your account holds $12,000 in securities against an $8,000 debit balance. Your equity is $4,000, or 33 percent. If the house maintenance requirement is 40 percent, you need $4,800 in equity. The $800 gap is the margin call.5SEC.gov. Understanding Margin Accounts
Some firms issue intraday calls during sharp market drops rather than waiting for the close, and some skip the call entirely and sell securities right away.3FINRA. Know What Triggers a Margin Call
You can respond to a call in three ways:
- Deposit cash. A wire or electronic transfer directly increases equity and reduces the debit.
- Deposit eligible securities. Transferring margin-eligible stocks or bonds into the account raises total assets.
- Sell holdings. Liquidating positions pays down the loan. You often need to sell substantially more than the call amount; at a 40 percent house requirement, that is roughly 2.5 times the call value to bring the account back into compliance.3FINRA. Know What Triggers a Margin Call
If you do not act and the firm does not extend the deadline, it must liquidate. The firm is not required to notify you before selling, is not required to let you choose which securities go, and may sell enough to pay off the entire margin loan rather than just the call amount.3FINRA. Know What Triggers a Margin Call Under most margin agreements, the firm can sell your securities even after offering you time to meet the call.5SEC.gov. Understanding Margin Accounts
Securities You Cannot Buy on Margin
Not every investment counts toward a margin balance. Securities that fall outside Regulation T’s definition of a “margin equity security” must be paid for in full, 100 percent of current market value, even inside a margin account.6FINRA. Regulatory Notice 11-16 Common non-marginable categories include:
- Penny stocks trading below $5, excluded for volatility and thin liquidity.
- Initial public offerings, often non-marginable for a period after they begin trading.
- Over-the-counter securities that trade outside major exchanges.
- Recently purchased mutual funds, typically non-marginable for the first 30 days after purchase.
Short selling a non-marginable security carries an initial margin requirement of 150 percent of the current market value, with a 100 percent maintenance requirement.6FINRA. Regulatory Notice 11-16 In practice, most brokerages simply block margin orders on these securities.
Tax Treatment of Margin Interest
Interest paid on a margin loan counts as investment interest expense, and it may be deductible on your federal return if you itemize.7Internal Revenue Service. Topic No. 505, Interest Expense The deduction is capped at your net investment income for the year.8Office of the Law Revision Counsel. 26 U.S. Code 163 – Interest Net investment income includes taxable interest, non-qualified dividends, and short-term capital gains, minus directly connected investment expenses.
If your margin interest exceeds net investment income in a given year, the unused portion is not lost. It carries forward to the following year and is treated as if you paid it then.8Office of the Law Revision Counsel. 26 U.S. Code 163 – Interest You claim the deduction on IRS Form 4952 along with Schedule A.9Internal Revenue Service. Form 4952 – Investment Interest Expense Deduction Taking the standard deduction instead means no benefit from margin interest.
Risks Worth Knowing Before You Borrow
The SEC warns that margin accounts carry risks that go well beyond a cash account.5SEC.gov. Understanding Margin Accounts A few worth weighing:
- You can lose more than you invest. If margined securities lose enough value, you could still owe the brokerage money after every position is sold. The loan and its accrued interest remain your responsibility.
- You may need to deposit cash on short notice. Market drops can trigger calls with little or no warning, and the firm is not required to notify you before it acts.
- The firm can sell your securities without consulting you. Under most margin agreements, the brokerage chooses which holdings to liquidate and when.
- Interest erodes returns. Because it compounds daily, a margined position has to outperform the borrowing rate before you net anything.
Margin amplifies price moves in both directions. A 10 percent decline in a fully margined position, borrowed at 50 percent, is a 20 percent loss on your equity before interest. The same leverage works when prices rise, which is the draw. The downside is the reason to think carefully before opening the account.