Margin Mechanics and Margin Calls
Two separate requirements govern a margined position: what is needed to open it and what is needed to keep it. A call arrives when equity falls below the second.
MadStockAlerts Research · Updated August 29, 2026
What to take away
- Initial margin governs opening a position; maintenance margin governs keeping it.
- A call is triggered by equity as a percentage of market value, not by a loss in dollars.
- Brokers set house requirements above the regulatory minimums, and change them without notice.
- A forced liquidation is executed by the broker, at its choice of security and price.
- Leverage compounds in both directions: the loan is fixed, so the loss falls entirely on the equity.
MAD Academy Training Video · 0:46
The Call You Do Not Get to Answer
A margin call is a broker's right to sell your positions, at their discretion, and the timeline can be measured in hours.
This lesson is part of a Stock Alerts + Tools plan.
The two requirements
Regulation T governs the initial extension of credit, conventionally allowing up to fifty percent of the purchase price of a marginable security to be borrowed. Maintenance margin, set by exchange rules at a minimum of twenty-five percent and by brokers at higher levels in practice, governs how much equity must remain thereafter.
account equity = market value of securities - margin loan
- the loan is a fixed dollar amount and does not change as prices move
- equity as a percentage of market value is what the maintenance requirement is tested against
Because the loan is fixed, the entire change in market value falls on the equity. A position bought half on margin that falls twenty percent has lost forty percent of the equity behind it, which is the whole of what leverage means.
When a call is triggered
A maintenance call arises when equity falls below the required percentage of market value. It is worth working through a case, because the price at which it happens is further away than most people expect and closer than they assume once it is calculated.
| Value | |
|---|---|
| Purchase | $20,000 of stock, $10,000 cash and $10,000 borrowed |
| Maintenance requirement | 30 percent, a common house level |
| Price at which a call is triggered | About $14,300 of market value |
| The decline that produces it | Around 29 percent |
| Equity at that point | About $4,300, down from $10,000 |
The account has lost 57 percent of its equity on a 29 percent decline in the security, and the call arrives at that point rather than at the point where the loss becomes uncomfortable. The arithmetic is the same in every case; only the numbers change.
Scroll the chart sideways to see all of it.
- Equity
- Loan, unchanged
What happens next
A call can be met by depositing cash, depositing marginable securities, or closing positions. If it is not met within the period the broker allows, the broker closes positions itself.
- The broker chooses which securities to sell, and it is not obliged to sell the position that caused the shortfall.
- It may act before the stated deadline if the market is moving, and the agreement generally permits this.
- Liquidation is executed at market, which in a fast market is the worst available condition.
- The account remains liable for any shortfall if the sales do not cover the loan.
The last point is the one that separates margin from every other form of loss. A cash account can lose what is in it; a margined account can owe money afterwards, and the obligation survives the positions that created it.
House requirements and concentration
Regulatory minimums are a floor. Brokers set their own requirements above them, and adjust them by security and by account.
| Situation | Typical treatment |
|---|---|
| A large, liquid constituent | Close to the standard requirement |
| A volatile or recently listed security | Higher, sometimes substantially |
| A concentrated position in one name | A higher requirement on the concentrated part |
| A security in the news for a squeeze | Requirements raised, sometimes to 100 percent, at short notice |
| A leveraged or inverse fund | Typically higher than an ordinary equity |
The fourth row is the mechanism behind a recurring event: a requirement raised mid-episode forces holders to add capital or close, which is buying or selling driven entirely by the financing terms rather than by any view of the security.
Portfolio margin, and who it is for
An alternative margin regime exists for accounts meeting an equity threshold and an approval process. Rather than applying a fixed percentage per position, it computes a requirement from the risk of the whole portfolio under a set of simulated market moves.
| Standard margin | Portfolio margin | |
|---|---|---|
| Requirement basis | A fixed rule per position | Simulated portfolio-level stress |
| Hedged positions | Treated separately, so a hedge still consumes margin | Offsetting risk reduces the requirement |
| Typical leverage available | Around 2 to 1 on equities | Substantially higher for a hedged book |
| Minimum equity | Lower | A substantial threshold, set by rule and by the broker |
| Approval | Standard | Requires demonstrating experience |
The higher leverage is the point and it is also the risk. A requirement computed from simulated moves rises sharply when volatility rises, so the same portfolio can move from comfortable to a call because the market's volatility changed rather than because the positions did.
The regime rewards genuinely hedged books and penalises concentrated directional ones, which is what a risk-based calculation should do. It is not a way of obtaining more leverage on a single position.