Trading Defined
Risk ManagementIntermediate

Margin

Margin is the money you put up as collateral so that a broker lends you funds, or an exchange lets you hold a position larger than your cash.

“Margin” is used in two closely related ways. For shares, it means borrowing from your broker to buy more than you could pay for in cash, with your own money and securities as collateral. For futures and other derivatives, it means the deposit that guarantees you can cover losses on a contract. Both make your position larger than your money — which is why margin is the mechanism behind Leverage, margin calls and Liquidation.

Category
Risk Management
Reading time
9 min
Also called
Margin account, Margin trading, Buying on margin
Updated

Margin in plain words

Imagine buying a $10,000 car with $5,000 of your own money and a $5,000 loan. The car is yours, but the lender can take it if you stop paying. Buying shares on margin is similar: you pay part, the broker lends the rest, and the shares themselves are the security for the loan.

The difference is that a share price can fall much faster than a car loses value. The loan stays the same size, so every dollar the shares lose comes out of your part. If your part shrinks too much, the broker asks for more money — a margin call — or sells the shares to get its loan back.

With futures, nobody lends you money. Instead you leave a deposit with your broker to show you can cover losses. That deposit is also called margin, and it works like a safety bond rather than a down payment.1

How buying shares on margin works, step by step

These steps follow US rules for a stock margin account. Other countries, brokers and products set different numbers.

  1. Open a margin account

    A margin account is separate from a cash account and comes with a margin agreement. In the US you generally need to deposit at least $2,000, or 100% of the purchase price if that is less, and many firms require more.2

  2. Borrow part of the purchase price

    Under the Federal Reserve’s Regulation T you may borrow up to 50% of the purchase price of eligible securities. This is the initial margin.2

  3. Pay interest on the loan

    The borrowed amount accrues interest for as long as it is outstanding, whether the trade is winning or losing.2

  4. Keep enough equity in the account

    Your equity is the value of your securities minus what you owe. FINRA rules require it to stay at or above at least 25% of the securities’ market value — the maintenance requirement — and many firms set a higher house requirement.2

  5. Meet margin calls — or be sold out

    If equity falls below the requirement, the firm can ask you to add cash or securities. It does not have to warn you first: it may sell your securities at any time without consulting you, and it chooses which ones.23

  6. Repay the loan when you sell

    When you sell, the loan and interest are repaid first. Whatever remains is yours — and if the shares fell far enough, you can owe more than you put in.2

Worked examples

Example 1 — Margin magnifies a gain

Profit

You buy $10,000 of shares with $5,000 of your own money and a $5,000 margin loan. The shares rise 20%.

Assumptions
  • Margin interest of 8% per year, held for one year: $5,000 × 8% = $400.
  • No commissions or dividends.
Example 1 — Margin magnifies a gain — calculation
Value of the shares after +20%$12,000.00
Repay the loan−$5,000.00
Interest for the year−$400.00
Your money at the end$6,600.00
Return on your $5,000+32%

Without margin, a 20% rise would have earned 20%. Margin turned it into 32% after interest.

Example 2 — The same trade, shares fall 20%

Loss

Same position, but the shares fall 20%.

Example 2 — The same trade, shares fall 20% — calculation
Value of the shares after −20%$8,000.00
Repay the loan−$5,000.00
Interest for the year−$400.00
Your money at the end$2,600.00
Return on your $5,000−48%

A 20% fall cost nearly half of your money. The loan did not shrink; your equity absorbed the whole loss, and interest made it worse.

Example 3 — When the margin call comes

Thresholds

With a $5,000 loan and the minimum 25% maintenance requirement, how far can the $10,000 position fall?

Example 3 — When the margin call comes — calculation
Equity must stay ≥ 25% of valuevalue − $5,000 ≥ 0.25 × value
Value at which a call is triggered$6,666.67
Fall from $10,000−33.3%
Same, with a 30% house requirement−28.6%
Value at which your money is gone$5,000 (−50%)

Below $5,000 you owe the broker money: at $4,000 you have lost all $5,000 of your money and owe $1,000 more, plus interest — the kind of more-than-100% loss regulators warn about.2

Figure 1

The loan stays fixed — your equity takes every loss

How a margin loan stays fixed while your equity shrinksA $10,000 stock position bought with $5,000 of your own money and a $5,000 loan. At $10,000 your equity is $5,000, or 50% of the position. At $8,000 it is $3,000, or 37.5%. At about $6,667 it is $1,667, or 25% — the minimum maintenance level under FINRA rules, where a margin call can come. At $5,000 your money is gone, and at $4,000 you owe the broker $1,000.$10,000equity 50.0%Start$8,000equity 37.5%−20%$6,667equity 25.0%−33%margin call zone$5,000equity $0−50%$4,000owe $1,000−60%$5,000 loan (fixed)your equitystock value ↑
A $10,000 position bought with $5,000 of your money and a $5,000 loan. As the stock falls, the grey loan does not change; the green equity shrinks until it hits the 25% maintenance level near $6,667, disappears at $5,000, and turns into a debt below that.

Try it: when would a margin call come?

Enter your position value, your own money and the maintenance requirement your broker uses. The calculator shows the value at which your equity would fall below it. It runs in your browser.

Margin call level
Margin loan$5,000.00
Starting equity$5,000.00 (50%)
Position value that triggers a margin call$6,666.67
Fall needed to get there33.3%

At that point your equity would be $1,666.67. Your firm may sell your positions at or before this level, without contacting you first.

Simplified: one position, no interest. FINRA’s minimum is 25%; most firms set a higher house requirement.

Margin in shares, futures and crypto derivatives

The same word describes different mechanisms. Knowing which one applies tells you what you are paying for and what can go wrong.

AspectShares (US margin account)FuturesCrypto derivatives
What margin isYour part of the purchase; the rest is a loan2A performance bond, not a down payment1Collateral posted to the exchange for a leveraged contract
Typical initial amountAt least 50% of the purchase (Regulation T)2Often about 2–10% of the contract’s value1Set by the leverage you choose on the platform
InterestYes, on the loanNo loan, so no margin interestFunding payments on perpetual contracts
If losses mountMargin call; the firm may sell without notice2Daily settlement and margin calls to restore initial margin4Automatic liquidation based on the mark price5

Why traders use margin

  • To increase buying power

    Margin lets you hold more shares than your cash allows — at the cost of interest and higher risk.

  • To sell short

    Short selling shares requires a margin account; Regulation T sets the initial requirement for short sales at 150% of the position’s value.6 See short selling.

  • To trade futures and options strategies

    Futures always require margin deposits, and many options strategies — especially selling options — need a margin account.

  • Flexibility

    A margin account can avoid settlement delays when selling one position and buying another, and gives short-term liquidity — although borrowing for convenience still costs interest.

Advantages and disadvantages

Advantages

  • Increases buying power beyond your cash.
  • Required for short selling and many derivatives strategies.
  • Futures margin lets you control large exposures with relatively small deposits for hedging.

Disadvantages

  • Losses are magnified, and you can lose more than you deposited.2
  • Interest is charged on the loan whether the trade wins or loses.
  • Firms can raise requirements and sell your positions without notice.3
  • Forced selling tends to happen at the worst time — after a sharp fall.

Going deeper

Read as far as you need. Each level builds on the one before it.

Margin is a loan, not extra money

Beginner

Buying power that includes margin is not money you have; it is money you can borrow. Treat a margin account as a tool for specific purposes, and size positions from the loss you can accept, not from the buying power shown on screen.

Initial, maintenance and house requirements

Intermediate

Three numbers matter. The initial requirement is what you must put up to open the position (50% for most US stock purchases).2 The maintenance requirement is the equity you must keep afterwards (at least 25% under FINRA rules).2 The house requirement is your firm’s own, usually stricter, level — and it can be raised at any time, especially for volatile stocks.3

The margin rules themselves are set out in FINRA Rule 4210,7 and firms must give customers a margin disclosure statement explaining the risks before opening a margin account.8

Futures margin, intraday rules and crypto margin modes

Advanced

In futures, gains and losses are settled into your account every trading day. If your balance falls below the maintenance margin you must bring it back up to the initial margin, not just to the maintenance level.4

FINRA’s new intraday margin standards, effective from 4 June 2026 with a transition period, replace the old pattern-day-trader rules and require margin to be adequate during the trading day, not only at the close.9

Crypto derivatives platforms let you choose between isolated margin, where only the collateral assigned to a position is at risk, and cross margin, where the whole account balance supports all positions and the liquidation price moves with your other trades.5 See Cross and Isolated Margin.

Common mistakes

  1. Treating buying power as your money

    A screen that shows twice your cash as “buying power” is showing a loan limit, not wealth. Using all of it doubles every loss.

  2. Assuming you will be warned before a sale

    Many people expect a call before anything is sold. Firms are not required to contact you and may sell without notice.2

  3. Ignoring interest

    Margin interest is charged every day the loan is open. A trade that barely moves can still lose money once interest is included.

  4. Adding margin to a losing position

    Borrowing more to average down raises both the loan and the risk of a margin call on a position that is already moving against you.

Check your understanding

Test yourself before moving on. Each answer comes with an explanation.

Q1You buy $20,000 of shares with $10,000 of your own money. The shares fall to $16,000. What is your equity?
Q2Under FINRA’s minimum rule, what is the lowest share of the securities’ value your equity can be before a margin call?
Q3Is futures margin a down payment on the contract?

Key points to remember

  1. Margin is collateral: for shares it supports a loan; for futures it is a performance bond.
  2. In the US, Regulation T lets you borrow up to 50% of a stock purchase; FINRA requires at least 25% maintenance equity.
  3. The loan stays fixed, so your equity absorbs every loss — and you can lose more than you deposited.
  4. Firms can raise requirements and sell your positions without notice.
  5. Interest, funding and fees are charged on borrowed or leveraged amounts.

Frequently asked questions

Can I lose more than I invested with margin?

Yes. Because the loan does not shrink when prices fall, a large enough decline can wipe out your money and leave you owing the broker the difference plus interest.2

What is the difference between margin and leverage?

Margin is the collateral you post; leverage is how much larger the position is than that collateral. $5,000 of margin supporting a $10,000 position is 2× leverage.

Does every broker use the same margin requirements?

No. Regulation T and FINRA set minimums for US securities accounts, but each firm may set higher house requirements and change them at any time.3 Futures exchanges and crypto platforms set their own rules.

Do I pay interest on futures margin?

Futures margin is a deposit, not a loan, so there is no margin interest. Perpetual crypto futures instead have periodic funding payments between longs and shorts.

Further learning

  • Leverage

    Margin is how leverage is created; leverage is what it does to your results.

  • Liquidation

    What happens when margin runs out on a leveraged position.

  • Position Sizing

    How to size positions so a margin call never becomes likely.

  • Short Selling

    Short selling is impossible without a margin account.

Sources

This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.

  1. U.S. Commodity Futures Trading Commission. Economic Purpose of Futures Markets and How They Work (opens in a new tab) Checked .
  2. Investor.gov (SEC). Investor Bulletin: Understanding Margin Accounts (opens in a new tab) Checked .
  3. FINRA. Know What Triggers a Margin Call (opens in a new tab) Checked .
  4. U.S. Commodity Futures Trading Commission. CFTC Glossary (opens in a new tab) Checked .
  5. Binance. Three Misconceptions About Liquidations in Binance Futures (opens in a new tab) Checked .
  6. Legal Information Institute, Cornell Law School. 12 CFR § 220.12 – Supplement: margin requirements (Regulation T) (opens in a new tab) Checked .
  7. FINRA. Rule 4210. Margin Requirements (opens in a new tab) Checked .
  8. FINRA. Rule 2264. Margin Disclosure Statement (opens in a new tab) Checked .
  9. FINRA. Understanding the New Intraday Margin Requirements (opens in a new tab) Checked .

Read more elsewhere

Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.