A margin account is an account offered by brokerage firms that allows investors to borrow money to buy securities.

How a Margin Account Works

Brokers charge an interest rate on the borrowed money. Also, a maintenance margin is required meaning a minimum fixed dollar amount must be maintained in the account to be allowed to trade on margin. The minimum margin amount is calculated by subtracting the borrowed amount from the account's total equity which includes both cash and the value of any securities.   

How Much Can You Borrow? 

An investor with a margin account can usually borrow up to 50% of the total purchase price of marginable investments. The percentage amount may vary between different investments and brokers. Each brokerage firm has the right to define which investments among stocks, bonds, or mutual funds can be purchased on margin.

Margin Calls 

A margin call occurs when the investments in the account and the cash decrease in value and fall below the minimum maintenance margin amount. The investor must deposit additional funds or sell a portion of the portfolio to fund the margin call. If the investor doesn't fund the account following a margin call, the broker will sell some of the stocks in the account to make up the shortfall. The broker does not need the account holder's approval to sell any shares if the investor does not meet the margin call.


An investor deposits $20,000 into a brokerage account and borrows an additional $10,000 from the broker. The investor has $30,000 to invest. However, the maintenance margin of $7,000 must be maintained between cash and the value of the stocks. As long as the account maintains a value of more than $7,000, the investor will not get a margin call.  

However, it's important to remember that borrowing on margin could have consequences. A margin is leverage, which means that both your gains and losses are amplified. A margin is great when your investments are going up in value, but leverage can be a double-edged sword and amplify losses when the market is going down. A margin exposes investors to additional risks and is not advisable for beginner investors, and margins can be a useful tool for experienced investors, though if you're new to investing, it might be more prudent to play it safe.

For more on how margin works, please read our Margin Trading tutorial.

  1. How much can I borrow with a margin account?

    Understand the basics of margin accounts and buying on margin, including what amount investors can typically borrow for purchases ... Read Answer >>
  2. What Happens If I Cannot Pay a Margin Call?

    If an investor is unable to meet minimum margin, the broker may liquidate their securities. Read Answer >>
  3. What are the different types of margin calls?

    Learn the differences between margin calls and fed margin calls while reviewing the definitions of each and how to satisfy ... Read Answer >>
  4. How does margin trading in the forex market work?

    A margin account, used to invest in equities with the leverage of borrowed funds, is intended to increase the possible return ... Read Answer >>
Related Articles
  1. Trading

    A Guide to Day Trading on Margin

    Buying on margin is a good option if you don't have the cash to day trade.
  2. Investing

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  3. Small Business

    How Gross Margin Can Make or Break Your Startup

    Find out how your startup's gross margin can impact your business, including why a mediocre margin may spell disaster for a budding business.
  4. Investing

    Stock Market's New Threat Is Record Margin Debt

    Margin debt is a rapidly expanding threat that could turn a modest market drop into a drastic plunge.
  5. Insights

    Do Declining Corporate Margins Point To Recession in 2016?

    Learn how declining profit margins have foretold nearly every recession of the past 50 years, and analyze whether they may signal economic contraction in 2016.
  1. Margin Account

    A margin account is a brokerage account in which the broker lends ...
  2. Margin Call

    A margin call is a broker's demand of an investor who is using ...
  3. Buying On Margin

    Buying on margin is the purchase of an asset by paying the margin ...
  4. Minimum Margin

    Minimum margin is the initial amount required to be deposited ...
  5. House Maintenance Requirement

    The house maintenance requirement is the minimum margin account ...
  6. Long Market Value

    The long market value is the current market value of the securities ...
Trading Center