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. What Does a Share Liquidation in My Account Mean?

    A liquidation occurs when an account's holdings are sold off by the firm where the account was held. Read Answer >>
  2. 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 >>
  3. What's the difference between a cash account and a margin account?

    All transactions in a cash account must be made with available cash or long positions; a margin account allows investors ... Read Answer >>
  4. What is the difference between initial margin and maintenance margin?

    Learn the difference between an initial margin requirement and a maintenance margin requirement and how these affect an investor's ... Read Answer >>
  5. Why is purchasing stocks on margin considered more risky than traditional investing?

    Learn why purchasing stocks on margin is riskier than traditional investing, although it can be more profitable when it is ... Read Answer >>
Related Articles
  1. Managing Wealth

    What’s a Good Profit Margin for a New Business?

    Surprisingly, the younger your company is, the better its numbers may look when it comes to your profit margin.
  2. Investing

    Finding Your Margin Investment Sweet Spot

    Borrowing to increase profits isn't for the faint of heart, but margin trading can mean big returns.
  3. Investing

    Leverage: Is It Good for Your Portfolio?

    Discover the concept of financial leverage. Learn multiple ways to get leverage in your portfolio, and decide if leverage is a good idea for you.
  4. Investing

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  5. Investing

    Covered Call Strategies for a Falling Market

    Find out how to come out on top, even when the market is dropping.
  6. 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.
  1. Buying On Margin

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

    Minimum margin is the initial amount required to be deposited ...
  3. Margin

    Margin is borrowed money that is used to purchase securities. ...
  4. Liquidation Margin

    Liquidation margin is the value of all of the equity positions ...
  5. House Excess

    House excess is used by brokers to describe the amount of cash ...
  6. Five Hundred Dollar Rule

    The five hundred dollar rule is a regulation that prevents a ...
Trading Center