Direct Answer
A margin brokerage account allows borrowing from your broker to purchase securities. Regulation T sets initial margin at 50% of purchase price; FINRA sets minimum maintenance margin at 25% (most brokers require 30-40%). Falling below maintenance triggers a margin call. Pattern day traders (4+ day trades in 5 days) must maintain $25,000 minimum equity. Margin interest on borrowing is deductible only against net investment income (IRC Section 163(d)).
Margin Brokerage Account Profile: Reg T, Maintenance and Margin Calls
Margin Requirements
| Requirement | Rule | Level |
|---|---|---|
| Initial margin (equities) | Federal Reserve Regulation T | 50% of purchase price |
| Maintenance margin (minimum) | FINRA Rule 4210 | 25% of current market value |
| House maintenance margin (typical) | Broker-set (above FINRA minimum) | 30-40% (varies by broker and security) |
| Pattern day trader minimum equity | FINRA Rule 4210 | $25,000 at all times |
| Minimum to open margin account | FINRA Rule 4210 | $2,000 |
Reg T initial margin applies at time of purchase. Maintenance margin is an ongoing requirement. Brokers may set higher house minimums and may impose different requirements for individual securities (e.g., concentrated positions, low-priced stocks, or volatile names may require more equity). Source: Federal Reserve Regulation T (12 CFR 220); FINRA Rule 4210.
How Margin Calls Work
A margin call is issued when your account equity falls below the maintenance margin level:
- Equity formula: Account Equity = Market Value of Securities minus Margin Loan Balance
- Trigger: If Account Equity / Market Value falls below the maintenance percentage (commonly 30%), a margin call is issued
- Response options: (1) Deposit additional cash or eligible securities; (2) Sell existing positions to reduce the loan
- Broker rights: If the call is not met, the broker may liquidate positions without notice or consent to restore the required equity level
Example: You buy $10,000 of stock with $5,000 cash + $5,000 margin loan (50% initial Reg T). If the stock falls to $7,143, your equity is $2,143 ($7,143 minus $5,000) = 30%. At this point a typical broker's house maintenance call is triggered. You must deposit at least $357 or sell enough stock to restore 30% equity.
Tax Treatment of Margin Interest
Margin interest paid on borrowed amounts is potentially deductible as investment interest expense under IRC Section 163(d), subject to a key limitation: the deduction is limited to your net investment income for the year (interest income + qualified dividends elected to be taxed as ordinary income + short-term capital gains). Unused investment interest expense carries forward to future years.
Margin interest paid to purchase tax-exempt securities (municipal bonds) is NOT deductible. All other gains and income in a margin account are taxed the same as a cash brokerage account (long-term capital gains rates for assets held more than 12 months; ordinary income for short-term gains and dividends).
Frequently Asked Questions
- What is a margin brokerage account?
- A margin brokerage account allows borrowing from your broker to purchase securities. Regulation T (Federal Reserve) requires 50% initial margin for equities. FINRA Rule 4210 requires 25% minimum maintenance margin; most brokers require 30-40%. Falling below maintenance triggers a margin call. Minimum $2,000 to open. $25,000 minimum for pattern day traders. Margin interest is deductible against net investment income (IRC Section 163(d)).
- What is a margin call and how does it work?
- A margin call occurs when your account equity falls below the maintenance requirement (typically 30%). Equity = market value of securities minus margin loan. You must deposit cash or securities, or sell positions to restore the required equity level. The broker can liquidate positions without your consent if you do not meet the call. Source: FINRA Rule 4210; Federal Reserve Regulation T.
- What are the pattern day trader rules for margin accounts?
- A pattern day trader (PDT) executes 4+ day trades in 5 business days (and those day trades exceed 6% of total trades in that period). FINRA Rule 4210 requires PDT accounts to maintain $25,000 minimum equity at all times. Below $25,000, no additional day trades until equity is restored. PDT applies only to margin accounts; cash accounts are not subject to PDT rules. Source: FINRA Rule 4210.