Key takeaways
- A margin call is a demand from your broker to add cash or securities because the equity in your margin account has fallen below the required level.
- Equity is the market value of your securities minus what you owe; FINRA requires it to stay at least 25% of market value, and many firms require 30 to 40%.
- With a purchase financed half by a loan, a 25% maintenance requirement is breached after a fall of about one third; a 40% requirement after about one sixth.
- If you do not meet the call, the firm can sell your securities, and it may sell without any call or notice at all, choosing which holdings to sell.
- Firms can raise their requirements at any time without advance notice.
Borrowing to invest works smoothly while prices rise. When they fall, the loan stays the same size while the collateral shrinks, and at some point the lender wants more security. In a brokerage account that moment is a margin call. This guide shows how it is calculated and what the broker is allowed to do, building on the basics of a margin account.
The pieces of the calculation
- Market value (MV): what the securities in the account are worth now.
- Loan (L): what you owe the broker, the "debit balance".
- Equity (E): your share, E = MV − L.
- Maintenance requirement (m): the minimum equity, as a fraction of market value.
FINRA's Rule 4210 sets the floor for stocks held long at 25% of current market value. The SEC's bulletin on margin accounts notes that many firms set higher "house" requirements, typically 30 to 40%, and sometimes more for certain securities.
A margin call happens when E ÷ MV falls below m.
The SEC's worked example
You buy $16,000 of securities, paying $8,000 and borrowing $8,000. The market value drops to $12,000.
- Equity = $12,000 − $8,000 = $4,000.
- With a 25% requirement, you need 25% × $12,000 = $3,000. You have $4,000, so there is no call.
- With a 40% requirement, you need 40% × $12,000 = $4,800. You have $4,000, so the firm may issue a call for the $800 shortfall.
Same account, same prices: whether you get a margin call depends on your firm's house rule.
At what value does the call come?
Set equity equal to the requirement: MV − L = m × MV, so
trigger value = L ÷ (1 − m).
With the $8,000 loan from the example:
| Maintenance requirement | Trigger market value | Fall from $16,000 |
|---|---|---|
| 25% | $8,000 ÷ 0.75 ≈ $10,667 | about 33% |
| 30% | $8,000 ÷ 0.70 ≈ $11,429 | about 29% |
| 40% | $8,000 ÷ 0.60 ≈ $13,333 | about 17% |
So an account financed half by borrowing, at the 50% that Regulation T generally allows, faces a call after a fall of about one third under the FINRA minimum, and after only about a sixth under a 40% house rule. How far and how fast a price can move is the subject of volatility explained.
What happens next
The SEC bulletin sets out what a margin call means in practice:
- You generally cannot buy more securities in the account until the call is met.
- If you do not meet it, the firm will sell securities to bring equity back up.
- The firm may not be required to make a call at all, or to tell you the account has fallen below its requirement, and can sell your securities without consulting you first.
- Even if the firm offers you time to deposit more, under most margin agreements it can sell without waiting.
- You do not choose which securities are sold.
Investor.gov's glossary adds that a brokerage firm may change the threshold at which customers are subject to a margin call at any time. The bulletin warns that some investors have been shocked to find positions sold at a substantial loss without notice, and that a forced sale after a plunge removes any chance of recovering if the market bounces back.
Losing more than you put in
A margin call is not a floor on your losses. If prices fall far enough, or gap lower before the firm can sell, the proceeds may not repay the loan. The SEC's example of a $50 stock bought half on margin that falls to $15 leaves the investor owing $10 per share plus interest on top of losing the original stake.
Short sellers face margin calls too, and theirs can be triggered by a rising price with no upper limit; see short selling explained.
Reducing the chance of a call
The SEC's advice is mainly about understanding before acting: know how your account works and what happens when prices fall, understand the interest you pay, and ask whether margin is appropriate for your resources and tolerance for risk. The trigger formula shows why a smaller loan leaves more room: with a $6,000 loan instead of $8,000, a 40% requirement is reached only at $10,000. A stop order does not guarantee an exit price, so it is not a substitute for that room. Thinking honestly about risk tolerance comes first.
To learn how positions behave in falling markets without borrowing anything, Learn to Trade Stocks Beginner uses a virtual balance and includes lessons on managing risk. It is part of our education app collection; see the investing basics hub for related guides.
Good to know
Frequently asked questions
What is a margin call?
How do you calculate when a margin call will happen?
Can my broker sell my securities without telling me?
Can I lose more than my deposit after a margin call?
Sources
- Investor Bulletin: Understanding Margin Accounts (opens in a new tab)Investor.gov, U.S. Securities and Exchange Commission — accessed
- Margin Call (glossary) (opens in a new tab)Investor.gov, U.S. Securities and Exchange Commission — accessed
- Rule 4210: Margin Requirements (opens in a new tab)FINRA — accessed
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