Margin stock is any security a broker or a bank will accept as collateral for a loan used to buy or carry more securities. Federal rules decide which securities qualify, cap the loan at 50 percent of the purchase price, and set a minimum equity you have to keep in the account after the trade. That 50-percent ceiling has been in place since 1974 and applies the same way at every broker-dealer in the country.1Federal Reserve. Regulation U Compliance Guide
Which Securities Qualify
The Federal Reserve’s Regulation T uses the term “margin security” and defines several categories that count.2eCFR. 12 CFR 220.2 – Definitions The clearest case is any security registered on a national exchange or listed on the Nasdaq Stock Market. Shares of a well-known company bought through a major exchange almost always qualify.
The definition also reaches beyond listed stocks:
- Bonds and other debt instruments generally qualify regardless of where they trade.
- Shares of mutual funds and unit investment trusts registered under the Investment Company Act qualify, though many brokerages require a 30-day holding period before you can pledge them.
- Certain foreign securities that meet Federal Reserve criteria qualify as foreign margin stocks.
- A bond or note convertible into a security that already qualifies is itself eligible as collateral.
Older materials sometimes refer to “OTC margin stock” as a separate category. That pathway was largely absorbed when Nasdaq-listed securities received their own explicit recognition in Regulation T, though the underlying criteria still sit in the Code of Federal Regulations.3eCFR. 12 CFR 220.11 – Requirements for the List of Marginable OTC Stocks and the List of Foreign Margin Stocks
What Doesn’t Qualify
Plenty of securities fall outside the definition and can’t be pledged as collateral for a margin loan.
- Thinly traded OTC stocks, including Pink Sheets and lower-tier OTC market names, don’t have the liquidity or reporting that margin eligibility requires.
- Standardized options and futures are excluded from the Regulation T definition entirely; they run under separate margin frameworks set by their own exchanges.
- Shares from a recent IPO are commonly treated as non-marginable for about 30 days after the offering. This is standard brokerage practice rather than a specific FINRA rule.
- Mutual fund shares qualify by regulation but many brokerages impose a 30-day holding period before you can borrow against them.
You can still buy non-marginable securities inside a margin account. You just have to pay for them with your own cash or with buying power generated by other marginable positions. The non-marginable shares themselves can’t do the collateral work.
How Much You Can Borrow
When you buy a margin security, you put up at least 50 percent of the purchase price in cash or fully paid-for securities, and the broker lends the other half.4Federal Reserve Board. Federal Reserve Annual Report 2005 – Initial Margin Requirements Under Regulations T, U, and X Buying $20,000 of stock on margin means at least $10,000 of your own money goes in, and the $10,000 loan is secured by the shares you just purchased. Your broker can always require more than 50 percent, and many firms do for volatile stocks or concentrated positions. They can never require less.
A separate floor catches smaller accounts. FINRA requires a minimum equity deposit of $2,000 before you can trade on margin at all, or 100 percent of the purchase price if you’re buying less than $2,000 worth.5FINRA. FINRA Rule 4210 – Margin Requirements You can’t open a margin account with $500 and borrow another $500 against it.
Keeping the Account Above the Line
After the purchase, a second requirement takes over. Maintenance margin is the minimum equity you have to keep in the account on an ongoing basis, and your equity is simply the value of your securities minus what you owe the broker. FINRA sets the floor at 25 percent of the total market value of the margin securities you hold.6U.S. Securities and Exchange Commission. Understanding Margin Accounts
In practice, most brokerages enforce a house requirement of 30 to 40 percent, well above the FINRA floor, to give themselves a cushion against fast-moving declines. The threshold can also vary by individual security.
When equity drops below the maintenance level, you get a margin call: a demand to deposit additional cash or marginable securities to bring the account back into compliance.7FINRA. Know What Triggers a Margin Call This is where margin trading gets uncomfortable. Your broker isn’t required to warn you first, and most margin agreements let the firm sell your holdings immediately, without asking, to cover the shortfall. The firm picks which positions to liquidate. Any tax consequences from those forced sales are yours.
Even when the firm does issue a formal call, the timeline is short. Regulation T gives you one payment period (currently four business days from the trade date) to meet an initial margin deficiency, and maintenance calls from your broker can be tighter still. If you don’t meet the call, the firm sells whatever it takes to restore the required equity. This part of the process is not negotiable, and it’s the single biggest practical risk of trading on margin.
What the Loan Costs
The money the broker lends isn’t free. Margin interest accrues daily on your outstanding debit balance and is usually charged monthly, with most firms using a tiered structure where smaller balances pay higher rates and the rate drops as you borrow more.
Because the interest runs every day, a position held on margin for months can quietly erode your returns even when the stock is up. A stock that gains 8 percent over a year looks less impressive when you’ve been paying 9 or 10 percent on the borrowed half. Newer margin traders tend to underestimate this running cost.
There is a partial tax offset. The IRS treats margin interest as investment interest expense. If you itemize, you can deduct margin interest up to the amount of your net investment income for the year, which is your interest, ordinary dividends, and other investment income minus non-interest investment expenses. Anything you can’t deduct because it exceeds net investment income carries forward.8Internal Revenue Service. Publication 550 (2025) – Investment Income and Expenses The calculation goes on IRS Form 4952.9Internal Revenue Service. About Form 4952 – Investment Interest Expense Deduction
Loans From Banks and Foreign Lenders
Regulation T covers borrowing from a broker-dealer. Two companion rules cover everyone else, and together the three keep the 50-percent limit consistent regardless of where the loan comes from.
Regulation U governs credit extended by banks and other non-broker lenders when the loan is secured by margin stock and used to buy or carry securities. The maximum loan value is the same 50 percent of current market value.10eCFR. 12 CFR 221.7 – Supplement: Maximum Loan Value of Margin Stock and Other Collateral Non-bank lenders that regularly make such loans above certain thresholds have to register with the Federal Reserve and follow the same rules.11eCFR. 12 CFR Part 221 – Credit by Banks and Persons Other Than Brokers or Dealers (Regulation U)
Regulation X puts obligations on the borrower directly. If you get credit from a foreign lender to purchase margin stock, the loan has to conform to the same margin requirements that would apply if the lender were a domestic broker or bank.12eCFR. 12 CFR Part 224 – Borrowers of Securities Credit (Regulation X) The rule was added after some borrowers argued the margin regime applied only to lenders. It doesn’t.
The Day-Trading Tripwire
Active trading on margin can cross a line that carries much larger equity requirements. If you make four or more day trades within five business days, and those trades are more than 6 percent of your total trading in that period, FINRA classifies you as a pattern day trader. The designation requires $25,000 minimum equity in the margin account, maintained at all times.13FINRA. Day Trading
It isn’t a one-time deposit. If the account drops below $25,000, you can’t day trade again until you restore the balance, and funds deposited specifically to meet the requirement can’t be withdrawn for at least two business days. If you exceed your day-trading buying power and create a deficiency, the account gets restricted to cash-only trading for 90 days unless you meet the call within five business days.5FINRA. FINRA Rule 4210 – Margin Requirements
Many brokerages set house thresholds even higher than the FINRA floor. If you’re trading actively on margin, check your broker’s rules before you trip the designation. The restrictions are mechanical and immediate.