Margin Calculator

How a margin account works

A margin account lets you borrow from your broker against the securities you hold. Regulation T, written by the Federal Reserve, caps the initial loan at 50% of the purchase price for most listed stocks, so cash of C supports a position worth C / initial rate. With $25,000 and a 50% requirement, buying power is $50,000 and the loan is the $25,000 difference.

After the purchase, a different and lower number governs. Maintenance margin is the share of the position value your equity must stay above, and equity is simply market value minus the loan. FINRA sets the floor at 25%, and brokers routinely apply house requirements of 30% or more on volatile names. The loan does not shrink when the stock falls, so every dollar of decline comes out of your equity alone.

Working the default trade

The defaults buy 1,250 shares at $40, a $50,000 position funded by $25,000 of cash and a $25,000 loan. Equity starts at 50% of market value. The call arrives when equity divided by market value touches the 25% maintenance rate:

• Call price = loan / (shares x (1 - maintenance)) = 25,000 / (1,250 x 0.75) = $26.67
• That is 33.33% below the $40 entry, and at that price your equity is $8,333 on a $33,333 position.
• Interest at 11% for 60 days is 25,000 x 0.11 x 60 / 365 = $452.05.

Sell at $46 and the gross gain is $6 x 1,250 = $7,500. After interest the margin trade returns $7,047.95 on $25,000 of cash, or 28.19%. The same $25,000 in cash alone buys 625 shares and makes $3,750, a 15.00% return. Margin turned a 15% result into a 28.19% one, an amplification of 1.88 times rather than a clean 2.0, and the missing piece is the interest.

What the call actually looks like

When equity falls below the maintenance requirement, the broker issues a call for the shortfall. You can deposit cash, transfer securities or close positions. If you do none of those, the broker liquidates, and the margin agreement you signed lets it choose which positions to sell and when. Forced selling clusters at exactly the moments when prices are worst, which is how a temporary drawdown becomes a permanent one.

Because the loss lands entirely on your equity, leverage moves the drawdown math against you. A 33% fall in a fully margined position is a 67% fall in your own money, and the drawdown recovery calculator shows that needs a 200% gain to undo. Raise the maintenance input to 30% or 35% and watch the call price climb, since that is the number your broker is more likely to apply.

Deciding whether the loan is worth it

Margin interest is charged on the loan balance daily, so the hurdle is the rate multiplied by the holding period. At 11% a year, a position held three months needs to gain about 2.75% on the borrowed half before the borrowing pays for itself. Short holding periods make that hurdle small, which is part of why day traders use margin and long term investors mostly should not. Pattern day traders who keep at least $25,000 in equity get intraday buying power of four times maintenance excess, covered in day trading explained.

Size the position from the risk rather than from the buying power, using the rules in risk management for traders and the starting framework in how to start trading stocks. If you are borrowing to sell short instead, the requirement is higher and the mechanics differ, as set out in short selling explained and priced by the short selling profit calculator.