This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional.
Borrowing to buy stocks
A margin account lets you borrow from your broker to buy more securities than your cash alone would allow. The securities serve as collateral. As long as prices rise, leverage boosts your returns; when they fall, your own share of the account, the equity, shrinks faster than the market. If it falls below the broker’s maintenance requirement, you get a margin call.
Key terms
- Initial margin: the share of the purchase you pay with your own money. Regulation T sets it at 50% for most US stocks.
- Maintenance margin: the minimum equity, as a share of the current market value, you must keep. FINRA requires at least 25%; many brokers ask for 30 to 40%.
- Equity: market value of the securities minus the loan.
The formulas
Loan = purchase price × shares × (1 − initial margin)
Margin call price = loan ÷ (shares × (1 − maintenance margin))
Equity % = (market value − loan) ÷ market value
Example
You buy 100 shares at $100 with 50% initial margin, so you put in $5,000 and borrow $5,000. With a 25% maintenance margin:
- Margin call price = 5,000 ÷ (100 × 0.75) = $66.67, a 33.3% drop
- At $60, the shares are worth $6,000 and your equity is $1,000, or 16.7%
- To get back to 25%, you need 0.25 × 6,000 − 1,000 = $500 in cash, or you can sell shares
Note that a 40% fall in the stock wiped out 80% of your $5,000, because you still owe the full $5,000 loan.
What happens during a margin call
The broker asks you to deposit cash or securities, usually within a few days, but it is not required to wait. In a fast market, it can sell your positions immediately, choose which ones to sell and leave you with any remaining debt if prices gap below zero equity. Some brokers ask you to restore the account to a higher level than the maintenance minimum.
Reducing the risk
- Borrow less than the maximum, so a larger drop is needed before a call.
- Keep cash available to meet a call without being forced to sell at a low price.
- Avoid concentrating a margin account in one volatile stock; brokers often raise the requirement for such positions.
- Remember the interest: margin loans often cost several percentage points above benchmark rates, which eats into returns even when prices do not move.
Margin trading suits experienced investors who can follow their positions closely. Short selling, options and futures have their own margin rules, which this calculator does not cover.