In finance, the word “margin” carries two unrelated meanings. 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 percentage of revenue left after subtracting a category of costs. Both figures measure something about efficiency or capacity, but the mechanics, the risks, and the people who care about each number are almost entirely different.
Margin in a Brokerage Account
When you buy stock “on margin,” the broker lends you part of the purchase price and holds your securities as collateral for the loan. A cash account requires you to pay in full for every trade. A margin account lets you control a larger position than your own money would allow, which is why traders describe margin as leverage.
The Federal Reserve’s Regulation T, codified at 12 CFR Part 220, governs how much a broker can lend. For most stocks, the initial loan is capped at 50% of the purchase price.1eCFR. Part 220 Credit by Brokers and Dealers (Regulation T) – Section: 220.12 Supplement Margin Requirements To buy $10,000 of stock, you put up at least $5,000 in cash or eligible securities and the broker finances the rest. FINRA also requires a minimum equity deposit of $2,000 to open a margin account.
Because this is a loan, you pay interest for as long as you hold the position. Rates vary widely by broker and by loan size, and full-service firms in late 2025 quoted anywhere from roughly 7.5% on balances above $1 million to close to 12% on smaller loans.2Fidelity Investments. Margin Loans – Section: Margin Interest Rates3Charles Schwab. Margin Rates and Requirements – Section: Current Margin Rates Interest accrues daily and posts monthly, so the cost compounds quickly on positions held for weeks or months.
Why Margin Is Riskier Than Investing Cash
The most important fact about margin is that 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 doesn’t just erase your equity; it can leave you owing money you never had in the account.
Brokers can also sell your securities to cover a shortfall without asking you first and without giving advance notice.4FINRA. Margin Regulation Most firms send a margin call as a courtesy, but they are not required to. You cannot count on a phone call before your positions are liquidated at exactly the wrong price.
Before you can borrow, federal securities law requires the broker to give you a written disclosure covering the interest rate, how it is calculated, the conditions under which your collateral can be seized, and any related charges.5eCFR. 17 CFR 240.10b-16 – Disclosure of Credit Terms in Margin Transactions
Maintenance Margin and Margin Calls
Regulation T’s 50% cap is the initial margin, the deposit you need to open the position. A separate maintenance margin applies once the trade is on. FINRA Rule 4210 sets the federal floor at 25% of the current market value of the securities. Most brokerages set their own house requirements higher, typically 30% to 40%, and they can raise the requirement at any time for volatile or concentrated positions.6Financial Industry Regulatory Authority (FINRA). FINRA Rule 4210 – Margin Requirements – Section: (d) Additional Margin
A margin call happens when a drop in the portfolio pushes your equity below the maintenance threshold. The broker demands cash or additional securities to restore the required level. Under FINRA’s rule, the deficiency must be resolved within 15 business days unless FINRA grants more time.7Financial 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 guarantee. Brokers can set shorter internal deadlines, and they have the legal right to liquidate immediately, at prevailing prices, without waiting for you to respond.4FINRA. Margin Regulation You have no say in which positions get sold.
Futures Margin Is Not the Same Thing
Futures margin looks similar but works differently. The deposit is a performance bond posted with the exchange’s clearinghouse to guarantee you can honor the contract, not a loan from the broker. Because no credit is extended, there is no interest charge on the margin itself. Initial margin on a futures contract typically runs 2% to 12% of the contract’s notional value, well below the 50% required for stocks. If your account falls below the maintenance level, the broker calls for enough to bring you back to the full initial requirement.
The Pattern Day Trader Threshold
Active traders can trip an additional rule without realizing it. If you make four or more day trades within five business days, and those trades are more than 6% of your total activity in the account over that period, FINRA classifies you as a pattern day trader.8FINRA. Day Trading That classification requires you to keep at least $25,000 in equity in the margin account at all times. If your balance drops below $25,000, your broker will block further day trades until you deposit more.9FINRA.org. Margin Requirements (FINRA Rule 4210) – Section: Pattern Day Trading
In exchange for meeting that floor, pattern day traders get up to four times their maintenance margin excess in buying power for equity securities, double the two-times leverage available under Regulation T.10U.S. Securities and Exchange Commission (SEC). Margin Rules for Day Trading Exceeding that limit triggers a special day trading margin call and cuts your buying power back to two times your margin excess for five business days.
Tax Treatment of Margin Interest
Interest you pay on a margin loan is generally deductible as investment interest expense, but only up to your net investment income for the year.11Office of the Law Revision Counsel. 26 USC 163 – Interest – Section: (d) Limitation on Investment Interest Net investment income covers 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 their lower tax rates.
Any excess interest carries forward indefinitely to future tax years. You claim the deduction on IRS Form 4952 and you have to itemize; if you take the standard deduction, the interest gives you no tax benefit at all.12IRS.gov. Form 4952 – Investment Interest Expense Deduction
Profit Margins on a Company’s Income Statement
The second meaning of margin has nothing to do with borrowing. On a company’s financials, margin measures how much of each revenue dollar survives after a category of costs. Three layers are worth knowing, because each answers a different question about the business.
Gross Profit Margin
Gross margin strips out only the direct costs 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 production costs has a gross margin of 80%, meaning 80 cents of every dollar is available for 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. It shows how efficiently the company runs its day-to-day business. Strong gross margins paired with weak operating margins point to overhead that is too heavy for the revenue base. Public companies must break out operating income in their SEC filings, which makes this figure straightforward to compare across competitors in the same industry.
Net Profit Margin
Net margin is what’s left after everything: operating costs, interest on debt, and income taxes. Divide net income by revenue. The 21% federal corporate tax rate takes a meaningful bite here, and state taxes push the combined rate higher.
What qualifies as a “good” net margin depends on the industry. As of January 2026, semiconductor companies averaged roughly 30% net margins and software firms about 25%, while general retail was near 5.5% and grocery chains around 1.3%. The overall U.S. market average was approximately 9.7%.13NYU Stern. Operating and Net Margins – Margins by Sector (US) Comparing a retailer’s 5% margin unfavorably against a software company’s 25% misreads what the numbers measure. The two industries have fundamentally different cost structures.
Net Interest Margin for Banks
Banks have their own margin figure. Net interest margin captures the spread between what a bank earns on loans and what it pays depositors, expressed as a percentage of average earning assets. The calculation deliberately excludes fee income and other non-interest revenue, isolating the profitability of the core lending business.
As of the fourth quarter of 2025, the industry-wide net interest margin was 3.39%, its highest level since 2019.14FDIC. FDIC Quarterly Banking Profile Fourth Quarter 2025 Aggregate commercial bank margins have fluctuated between roughly 3% and 4.5% over the past three decades.15Board 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 assessment of whether banks are earning enough to absorb losses and maintain capital.16Federal Deposit Insurance Corporation. Section 5.1 Earnings
Rising interest rates do not automatically widen the margin. Banks earn more on new loans but often pay more to depositors as well, and the balance depends on how fast each side adjusts and on the shape of the yield curve. A bank that funds itself with short-term deposits and lends at long-term fixed rates can see its spread compress sharply if short rates rise toward long rates. A margin that looks healthy in one rate environment can shrink quickly in another.