How margin works
Buying on margin means paying for part of a position yourself and borrowing the rest from your broker. Under the US Federal Reserve's Regulation T, you must fund at least 50% of a new purchase: that is the initial margin. After that, your equity (the position's value minus the loan) has to stay above the maintenance margin. FINRA's minimum is 25% of the position for longs, and many brokers set 30–40%.
Loan = Price × Shares × (1 − Initial margin) Margin call price (long) = Loan ÷ (Shares × (1 − Maintenance margin))
Tip: many brokers set maintenance margin above the 25% FINRA minimum. Enter your broker's own rate, or your margin call price will look further away than it is.
Worked example: a long position
You buy 100 shares at $100 with 50% initial margin and the broker's maintenance is 25%.
- The position is $10,000. You put in $5,000 and borrow $5,000. That is 2× leverage.
- A margin call comes when equity falls below 25% of the position's value: 5,000 ÷ (100 × 0.75) = $66.67.
- That is a 33.3% fall. At $66.67 the shares are worth $6,667, you still owe $5,000, and your $1,667 equity is exactly 25%.
- At $60 your equity is $1,000 against $1,500 required. You'd cover it by depositing $500 or selling 34 shares.
Short positions
When you short, the sale proceeds stay in your account along with your own margin deposit. Your equity shrinks as the price rises, because buying the shares back costs more. FINRA's minimum maintenance for most shorts is 30% (more for stocks under $5).
Margin call price (short) = (Sale proceeds + Deposit) ÷ (Shares × (1 + Maintenance margin))
Shorting 100 shares at $100 with a 50% deposit leaves $15,000 in the account. At 30% maintenance, the call comes at 15,000 ÷ 130 = $115.38, a 15.4% rise. A short is called after a smaller move than a long, and the loss has no upper limit.
Interest and borrow fees
Borrowed money costs interest, charged daily. $5,000 at 8% a year for 30 days is 5,000 × 0.08 × 30 ÷ 365 = $32.88, which pushes your break-even up by 33 cents a share. Shorts pay a stock-borrow fee instead; for hard-to-borrow stocks it can be very high.
Common mistakes
- Using the FINRA minimum when your broker's is higher. Check your broker's house requirement; it may be 30–40%, or more for volatile stocks.
- Thinking a call waits for you. Brokers can sell your shares without notice, and on a fast move they often do.
- Forgetting leverage cuts both ways. At 2× leverage a 10% fall in the stock is a 20% fall in your equity.
- Ignoring interest. On a long holding period it can turn a small gain into a loss.
Assumptions
How this calculator works. One stock position; no other holdings or cash in the account. Covering a call shows the minimum that restores the maintenance level; some brokers require you to return to the initial margin instead. Interest and borrow fees are simple interest on the starting loan or position value. FINRA's special rules for low-priced shorts ($5 per share minimum) and pattern-day-trader accounts are not modelled. This is a stock margin calculator, not for forex or CFDs.
