Margin

Stock trading dictionary: meaning, example and how traders use it.

Last updated: October 17, 2026

Definition: Margin is borrowed money a broker lends an investor to buy securities, with the account's holdings serving as collateral; trading on margin increases buying power and leverage but also magnifies losses and adds interest costs.

How margin works

To borrow, an investor opens a margin account and signs a margin agreement with a broker. The broker lends money against eligible securities, charges interest on the loan, and can sell holdings if the account's equity drops too low. Margin is also required to sell stocks short, since short selling involves borrowing shares.

Key US requirements include:

  • Initial margin: under Federal Reserve Regulation T, investors generally must pay for at least 50% of the purchase price of marginable stocks.
  • Maintenance margin: FINRA rules require equity of at least 25% of the market value of long positions, and many brokers set higher "house" requirements, especially for volatile or concentrated holdings.
  • Minimum equity: a margin account generally needs at least $2,000 in equity.

Not every security is marginable. Brokers apply a haircut to collateral, and many low-priced, thinly traded, or newly listed stocks have no loan value.

Example of buying on margin

Suppose an investor has $10,000 and buys 400 shares of a $50 stock, a $20,000 position, borrowing $10,000. Equity starts at 50%.

  • If the stock rises to $60, the position is worth $24,000. After the $10,000 loan, equity is $14,000, a 40% gain on a 20% price move, minus interest.
  • If the stock falls to $40, the position is worth $16,000 and equity is $6,000, a 40% loss.
  • With a 25% maintenance requirement, a margin call would occur if the position fell to about $13,333, roughly $33.33 per share.

Margin interest accrues daily. At a hypothetical 9% annual rate, the $10,000 loan costs about $900 per year, a hurdle the investment must clear.

Other meanings of margin

In futures trading, margin is a good-faith deposit rather than a loan, and positions are marked to market daily. In accounting, margin means profit as a percentage of revenue, such as gross or operating margin on an income statement. Context usually makes the meaning clear.

Risks of margin trading

Margin creates leverage, so losses grow as fast as gains. A broker can sell securities without contacting you first, may choose which positions to sell, and can raise requirements at any time. In fast-moving markets, gaps can push equity negative, leaving the investor owing money. Margin also adds a cost that compounds over time. Many investors use it sparingly, if at all, and keep a substantial buffer above the maintenance requirement. Retirement accounts such as an IRA generally cannot use margin borrowing.

Frequently asked questions

What is a margin account?

It is a brokerage account that lets the investor borrow money from the broker to buy securities, using the account's holdings as collateral.

How much can you borrow on margin?

Under Regulation T, investors generally can borrow up to 50% of the purchase price of marginable stocks, though brokers may allow less.

Is margin trading risky?

Yes. Margin magnifies losses as well as gains, adds interest costs, and can lead to forced selling or losses greater than the original investment.

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For information only, not investment advice. See the disclaimer.