Margin Trading Explained: Reg T, Maintenance Margin, Margin Calls, and CIRO Rules

Margin trading means buying securities partly with money borrowed from your broker, using the securities in your account as collateral. It magnifies results in both directions: a 20% rise in the stock becomes a larger percentage gain on your own money, and a 20% fall becomes a larger percentage loss, plus interest. If losses shrink your equity below a required level, the broker can demand more money or sell your holdings, without asking first.

In short: in the US, Regulation T generally lets you borrow up to 50% of the purchase price of a marginable stock, and FINRA Rule 4210 requires your equity to stay at least 25% of the market value of the stocks you hold (brokers often require more). In Canada, CIRO sets a margin rate for each security, commonly 50% for stocks priced at $2 or more and 30% for stocks on its reduced-margin list, and that rate applies continuously as prices move. When equity falls below the requirement, you face a margin call.

The vocabulary

Margin account: a brokerage account that allows borrowing. You sign a margin agreement and receive a margin disclosure statement.
Debit balance (or loan): what you owe the broker.
Equity: the market value of your securities minus the debit balance. This is what would be yours if everything were sold and the loan repaid.
Initial margin: the share of a purchase you must fund yourself.
Maintenance margin: the minimum equity you must keep as a percentage of the current market value.
Margin call: a demand to add cash or securities, or to sell, to restore the required equity.

Retirement and registered accounts (IRAs, 401(k)s, TFSAs, RRSPs) generally can’t be used for margin borrowing.

US rules

Rule	Requirement
Regulation T (Federal Reserve)	Initial margin of 50% of the purchase price for marginable stocks. For short sales, 150% of the sale value must be in the account.
FINRA Rule 4210	At least $2,000 of equity to open a margin position (but you never have to deposit more than the cost of what you buy).
FINRA Rule 4210	Maintenance margin of at least 25% of the current market value of long marginable stocks. For short stock, at least 30% (or $5 a share) for stocks at $5 or more.
Broker “house” rules	Often 30% to 40% maintenance, higher for volatile or concentrated positions, and can be raised at any time without advance notice.

Day trading rules changed in 2026

For decades, FINRA treated anyone who made four or more day trades within five business days in a margin account as a pattern day trader, who then had to keep at least $25,000 of equity. In April 2026 the SEC approved FINRA amendments that replace those day-trading provisions entirely with a new intraday margin framework. The changes took effect June 4, 2026, but firms may phase them in until October 20, 2027, so as of November 2026 some brokers may still apply the old $25,000 rule. Under the new standard, firms calculate whether an account has an intraday margin deficit on days it adds risk, and customers must cover deficits promptly; repeated failure to cover can lead to a 90-day restriction. Regular maintenance margin is unchanged.

A worked example: leverage in both directions

You buy 200 shares of hypothetical Maple Widgets Inc. at $50, a total of $10,000. You put up $5,000 and borrow $5,000 (the Reg T maximum). Assume margin interest of 10% a year, an illustrative rate; actual rates vary by broker and balance.

After one year, the stock is up 20% to $60

Value: 200 x $60 = $12,000. Debit: $5,000. Equity: $7,000.
Interest paid: $500.
Net gain: $7,000 minus $5,000 minus $500 = $1,500, or 30% on your $5,000.
Without margin (buying 100 shares with $5,000): gain of $1,000, or 20%.

After one year, the stock is down 20% to $40

Value: 200 x $40 = $8,000. Debit: $5,000. Equity: $3,000.
Interest paid: $500.
Net loss: $2,000 plus $500 = $2,500, or 50% of your $5,000.
Without margin: loss of $1,000, or 20%.

Leverage turned a 20% gain into 30% and a 20% loss into 50%. Interest makes the arithmetic lopsided: you pay it whether the stock goes up or down.

If the stock falls 50% to $25, the shares are worth $5,000, exactly the amount of the loan. Your equity is zero. A 50% fall in the stock wiped out 100% of your money.

When does a margin call come?

The call comes when equity falls below the maintenance requirement:

Value minus Debit is less than Maintenance % x Value

which rearranges to: Value is less than Debit / (1 minus Maintenance %).

With a $5,000 debit:

Maintenance requirement	Account value that triggers a call	Share price (200 shares)	Drop from $50
25% (FINRA minimum)	$5,000 / 0.75 = $6,666.67	$33.33	33%
30% (common house rule)	$5,000 / 0.70 = $7,142.86	$35.71	29%
40% (stricter house rule)	$5,000 / 0.60 = $8,333.33	$41.67	17%

Meeting the call

Say the stock falls to $30 and your broker uses the 25% minimum.

Value: $6,000. Debit: $5,000. Equity: $1,000.
Requirement: 25% x $6,000 = $1,500.
Shortfall: $500.

You have two basic ways to fix it:

Deposit $500 in cash. The debit drops to $4,500, equity rises to $1,500, which is 25% of $6,000.
Sell stock. Because each dollar of stock sold reduces both the value and the loan, you need to sell more than $500. Selling $2,000 of stock (about 67 shares) leaves value of $4,000, a debit of $3,000, and equity of $1,000, which is exactly 25% of $4,000. In other words, a $500 shortfall forces you to sell four times as much stock.

The general formula for the sale needed is shortfall / maintenance %: $500 / 0.25 = $2,000.

The broker doesn’t have to wait

The SEC’s investor bulletin on margin and FINRA’s required margin disclosure statement are explicit on points that surprise many people:

The firm can sell your securities without contacting you.
Even if the firm gives you a deadline to meet a call, it can sell before then if it needs to protect itself.
You don’t choose which securities are sold.
The firm can raise its house requirements at any time, without advance written notice.
You are not entitled to an extension.

And if the account goes negative in a fast fall, you still owe the broker the difference.

Canada: CIRO margin

Canadian investment dealers follow margin rules set by CIRO. The structure differs from the US in one important way: rather than a 50% initial rate and a lower 25% maintenance rate, CIRO’s rules work from a single margin rate for each security, and the loan value is 100% minus that rate. The account must stay fully margined as prices move.

Security (long position)	CIRO minimum margin rate	Maximum loan value
On CIRO’s List of Securities Eligible for Reduced Margin	30%	70%
Other marginable listed stocks priced $2.00 or more	50%	50%
Lower-priced stocks	Higher rates, rising to 100% (no loan value) for stocks below $1.50	Lower, down to 0%

CIRO publishes the reduced-margin list every quarter, based on criteria including price volatility, price ($2.00 or more), and how long the security has been listed. Firms may set stricter rates than CIRO’s minimums.

Canadian worked example

You buy $10,000 of a stock that is not on the reduced-margin list, borrowing the maximum $5,000.

If the position falls to $9,000, loan value is 50% x $9,000 = $4,500. You owe $5,000, so you have a margin deficiency of $500 after a 10% decline.

Compare a stock on the reduced-margin list, with the same $5,000 loan:

Loan value is 70% of market value. The deficiency appears when 70% x value falls below $5,000, which is at a value of $7,142.86, about a 29% fall.

Borrowing less than the maximum gives you more room. Borrowing the maximum on a 50% stock gives you almost none.

What can go wrong

Gaps and crashes. Prices can jump past your margin-call level overnight. In a sharp market fall, forced selling by many margin borrowers can push prices lower still. Margin debt played a role in several historical crashes, covered in stock market crashes in history.
Concentration. A margin loan against a single stock ties your entire account to that one company. Brokers often raise requirements on concentrated or volatile positions, exactly when they are falling.
Interest drag. At high rates, a leveraged position has to earn more than the interest just to break even. Interest is also one of the ways stock brokers make money.
Volatility. The more a stock moves, the more likely a temporary dip triggers a call and a forced sale at a low. Volatility is not just noise when you’re leveraged.
Short positions. Short selling always happens in a margin account and carries unlimited loss potential; see how short selling works.

The short version

Margin is a loan secured by your investments. In the US, Reg T caps the initial loan at about half the purchase, and FINRA requires equity of at least 25% of the position’s value afterwards; in Canada, CIRO sets a single margin rate per security, typically 50% or 30%. Leverage amplifies gains and losses, interest is a constant cost, and when equity runs short, the broker can sell your holdings without asking, at whatever the price happens to be.