Margin requirements are the rules that set how much of your own money you must put up to borrow from a brokerage against securities, and how much equity you must keep in the account afterward. Under the Federal Reserve’s Regulation T, you generally need to deposit at least 50% of a purchase’s price to open the position.1eCFR. 12 CFR Part 220 – Credit by Brokers and Dealers (Regulation T) FINRA then requires you to keep equity of at least 25% of the position’s current market value for as long as you hold it.2FINRA. FINRA Rule 4210 – Margin Requirements Both figures are federal floors, and your broker is free to demand more.
What You Must Deposit to Open a Position
Regulation T sets the initial deposit at 50% of the purchase price for most exchange-listed stocks. If you want to buy $20,000 of stock, at least $10,000 has to come from your own cash or eligible securities before the brokerage can lend you the rest.
That 50% is a floor. Many firms set higher initial requirements for specific securities or account types, so you may be asked to put up more. And some securities are not marginable at all: stocks trading below $5 per share are widely treated as ineligible for margin, and Regulation T requires 100% of their market value as the initial deposit even inside a margin account.3FINRA. Regulatory Notice 11-16 – Treatment of Non-Margin Eligible Equity Securities
What You Must Keep in the Account Afterward
Once the position is open, FINRA Rule 4210 requires ongoing equity of at least 25% of the current market value of the securities you hold on margin. If your portfolio is worth $10,000, the portion you own free of debt has to stay above $2,500.
In practice, most brokerages set “house” maintenance requirements above the 25% minimum, typically 30% to 40% depending on the security and the firm.4U.S. Securities and Exchange Commission. Investor Bulletin: Understanding Margin Accounts Your broker can raise its house requirement at any time without advance notice, which means an account can trigger a margin call even in a flat market simply because the firm tightened its rules.
A related rule kicks in when one holding dominates the account. If a single security makes up an outsized share of your positions, the brokerage may impose a concentration requirement, raising the equity threshold on that position to push you toward diversification. These adjustments can also happen without advance notice.
Minimum Equity to Have a Margin Account
Before you can trade on margin at all, FINRA requires a minimum deposit of $2,000 or 100% of the purchase price, whichever is less. Some firms set the account-opening minimum higher than $2,000. You have to keep this floor met even when a particular trade does not use your full buying power.
Pattern Day Traders: $25,000
A much steeper minimum applies to frequent day traders. FINRA classifies you as a “pattern day trader” if you execute four or more day trades within five business days, and those day trades make up more than 6% of your total trades over that period.5SEC.gov. Margin Rules for Day Trading Once you carry that label, you must keep at least $25,000 in the account at all times.6Investor.gov U.S. Securities and Exchange Commission. Pattern Day Trader Drop below that and you are restricted to closing existing positions until you bring the balance back up or wait 90 days.
A brokerage can also designate you a pattern day trader if it has reason to believe you intend to trade that way, before you actually hit the four-trade count, and some firms apply broader definitions than the FINRA minimum.
What Happens If Your Equity Falls Short
When your equity drops below the maintenance level, the brokerage issues a margin call: a demand that you deposit additional cash or marginable securities, or sell holdings to reduce the borrowed amount. Deadlines to respond range from a few hours to several business days depending on market conditions and firm policy.
You should not count on getting that window. Under most margin agreements, the firm can sell securities in your account to cover a shortfall without contacting you first, and you have no right to choose which securities are sold or at what price. Even if the broker offers time to meet the call, it can still liquidate positions immediately if it deems that necessary to protect itself.
A forced sale does not always end the matter. If the proceeds fall short of what you borrowed, you still owe the brokerage the remaining balance. Your loss is not capped at the collateral you put up; in a sharp enough decline, you can end up owing money beyond what was in the account.
Higher Requirements for Short Sales and Leveraged Products
Some positions carry stiffer margin rules because they carry more risk.
For short sales, Regulation T requires a total margin deposit of 150% of the shorted security’s market value. The short-sale proceeds cover 100% of that when they land in the account, so you effectively put up 50% from your own equity.7Federal Reserve Board. Federal Reserve Board Legal Interpretations from 4/17/98 Maintenance minimums under FINRA Rule 4210 depend on price:
- Stocks at $5.00 or above: the greater of $5.00 per share or 30% of the current market value.
- Stocks below $5.00: the greater of $2.50 per share or 100% of the current market value.
Because a short position has theoretically unlimited loss potential, brokerages often set house maintenance well above these floors.8FINRA. Guide to Updated Interpretations of FINRA Rule 4210 – Margin Requirements
Leveraged ETFs carry maintenance requirements that scale with their leverage multiple. The general approach used by exchanges is to multiply the standard 25% maintenance requirement by the fund’s leverage factor, capped at 100%. A 2x leveraged ETF works out to 50%, and a 3x ETF to 75%.9Cboe. Margin Requirement for Leveraged ETFs and Uncovered Options Some firms require 100% equity on the most volatile leveraged products, effectively treating them as non-marginable.
What Borrowing on Margin Costs
A margin balance is a loan, and interest accrues on the borrowed amount for as long as the debt is outstanding. Brokerages typically calculate interest daily on your debit balance and charge the accrued amount monthly.10Investor.gov U.S. Securities and Exchange Commission. Investor Bulletin: Interested in Margin? Understand Interest A 7% annual rate on a $50,000 loan produces roughly $9.59 per day.
Rates are usually a base rate plus a spread that varies by balance size, with larger balances getting lower rates. Tiers at a major brokerage can range from around 10% on six-figure balances up to nearly 12% for balances under $25,000, and they move with the broader interest rate environment. Your broker must give at least 30 days’ written notice before changing its method of computing interest. Some firms sweep any uninvested cash against the debit balance to reduce what you owe.
Tax Deductibility
Margin interest paid to buy or hold investment securities is treated as “investment interest expense” for federal tax purposes. You can deduct it, but only up to your net investment income for the year, generally your dividends, interest, and short-term capital gains minus investment expenses.11Office of the Law Revision Counsel. 26 U.S. Code 163 – Interest Anything above that carries forward to future years. Claiming the deduction requires itemizing on Schedule A and filing IRS Form 4952.12Internal Revenue Service. About Form 4952, Investment Interest Expense Deduction
Where Margin Doesn’t Apply the Same Way
Margin borrowing is effectively off-limits inside a Traditional or Roth IRA. The IRS treats borrowing from an IRA, or pledging IRA assets as collateral, as a prohibited transaction.13Internal Revenue Service. Retirement Topics – Prohibited Transactions Trigger one and the entire IRA is treated as distributed on the first day of that tax year, generating income tax on the full value and, if you are under 59½, a 10% early distribution penalty. Some brokerages offer “limited margin” in IRAs that lets you trade with unsettled funds or run certain options strategies without an actual credit extension; if your firm offers it, confirm the terms do not involve pledging IRA assets as loan collateral.
Larger accounts may qualify for portfolio margin, an alternative framework that calculates requirements from risk-based modeling across the whole portfolio rather than fixed percentages per position. For hedged or well-diversified accounts, that can lower margin requirements significantly. FINRA sets a minimum equity of $100,000 for firms with full real-time intraday monitoring, with higher minimums for firms with less monitoring or trades executed away from the carrying broker.14FINRA. Regulatory Notice 21-24 Attachment – FINRA Rule 4210 Brokerages generally require options trading approval and can add their own eligibility criteria on top of the FINRA minimums.