An equity margin call happens when a margin account’s equity falls below the minimum threshold set by the regulator or by the broker. In the United States, the Federal Reserve’s Regulation T sets initial margin at 50% of the purchase price of an eligible security, and FINRA additionally requires a maintenance margin of at least 25% of the market value of securities held on margin, according to FINRA’s fact sheet Know What Triggers a Margin Call.
What Regulation T Sets at Position Opening
Regulation T, codified in Title 12 of the Code of Federal Regulations, requires an initial margin for an eligible margin security equal to 50 percent of the current market value of the security, or the percentage set by the rules of the relevant regulatory market authority, whichever is greater. Concretely, to buy $16,000 of securities, an investor must put up at least $8,000 in cash or securities, and may borrow the rest from their broker. The SEC illustrates this mechanism in its guide Margin: Borrowing Money to Pay for Stocks, which also notes that before allowing any margin trading, FINRA requires a minimum deposit of $2,000, or 100% of the purchase price of the securities if that amount is lower, according to the Understanding Margin Accounts bulletin from the SEC’s Investor.gov.
The FINRA Maintenance Requirement and What Triggers the Call
Once a position is open, Reg T no longer applies on an ongoing basis; it is FINRA’s maintenance rule that takes over. It requires that account equity not fall below 25% of the current market value of the long margin securities held, or the broker issues a margin call. Take the SEC’s example again: a $16,000 purchase financed with $8,000 in borrowed money leaves $8,000 of equity at the start. If the market value of the securities drops to $12,000, equity mechanically falls to $4,000, since the debt stays fixed at $8,000. With a FINRA threshold of 25% of $12,000, or $3,000, the $4,000 of equity is still sufficient in this specific example, but any further decline would push the account closer to triggering a call.
FINRA also notes that this 25% threshold is a regulatory floor, and that each broker can impose a stricter house requirement, for example 30 or 40 percent, and can raise it at any time without prior written notice, according to the same FINRA fact sheet cited above. An account that complies with Reg T and the FINRA rule can therefore still trigger a margin call if the broker’s house requirement is stricter.
How to Calculate the Exact Amount of a Margin Call
When the house requirement exceeds the FINRA threshold, FINRA provides the formula for calculating the amount needed to cover the call: divide the amount of the call by (100% minus the margin requirement percentage). With a house requirement of 40%, a margin call of $6,000 is covered by depositing $10,000, since $6,000 divided by 0.6 equals $10,000, according to the example given by FINRA. This deposit can be made in cash, in securities already held outside the margin account, or, absent a response from the client within the deadline set by the broker, through a forced liquidation of part of the account’s positions to bring equity back to the required level.
| Threshold | Level | Source |
|---|---|---|
| Reg T initial margin | 50% of the purchase price of the security | eCFR, 12 CFR 220.12 |
| Minimum deposit before margin trading | $2,000 or 100% of the price if lower | SEC Investor.gov |
| FINRA maintenance requirement | 25% of the market value of long securities | FINRA, Know What Triggers a Margin Call |
| House requirement (example) | 30 to 40% depending on the broker | FINRA, Know What Triggers a Margin Call |
This Reg T and FINRA margin mechanism applies to regulated margin accounts in the United States; it does not describe prop firm combined trading accounts, nor leveraged Forex, where margin and leverage rules differ, as explained in the article on US Forex leverage 50:1 and the cap set by the CFTC and the NFA.
Frequently Asked Questions About the Equity Margin Call
What triggers an equity margin call?
An equity margin call is triggered when account equity falls below the maintenance threshold, set at a minimum of 25% of the market value of long securities by FINRA, or below a higher house threshold freely set by the broker.
What is the difference between initial margin and the maintenance requirement?
Initial margin, set by Reg T at 50% of the purchase price, applies at the moment a position is opened. The maintenance requirement, set by FINRA at a minimum of 25%, applies continuously for as long as the position remains open.
Does the broker have to give notice before raising its house requirement?
No. FINRA explicitly states that brokers can raise their house requirements at any time, without prior written notice, which can trigger a margin call even on an account that was previously compliant with regulatory thresholds.
How do you calculate the amount to deposit to cover a margin call?
The amount to deposit is obtained by dividing the amount of the call by (100% minus the applicable margin requirement percentage). For example, with a 40% requirement, a $6,000 call is covered by a deposit of $10,000.