margin
Margin generally means surplus, but has different uses depending on the legal context. In business accounting, a profit margin measures how much of revenue remains after specified costs or expenses. In securities trading, margin generally refers to the investor's equity in a margin account, and to the collateral that the investor must deposit or maintain when a broker-dealer extends credit to finance securities transactions.
An investor who buys securities on margin pays part of the purchase price and borrows the rest from the brokerage firm. The securities purchased, together with any other eligible assets in the account, serve as collateral for the loan, and the investor pays interest. Margin increases purchasing power and may magnify gains, but it also magnifies losses. An investor can lose more than the amount initially deposited and may still owe the firm money and interest after positions are sold.
For a new purchase of a margin equity security, Federal Reserve System's Regulation T generally requires an initial margin equal to 50 percent of the security's current market value, or any higher percentage required by applicable law or exchange rules. A brokerage firm may impose stricter house requirements, and some securities may be non-marginable or require the investor to pay the full current market value.
After a purchase, FINRA Rule 4210 imposes maintenance requirements. For margin securities held long in a customer's account, other than security futures contracts, Rule 4210(c)(1) generally requires maintenance margin of at least 25 percent of the current market value. Security futures contracts are generally subject to a separate 20 percent minimum, and non-margin-eligible equity securities held long are generally subject to a 100 percent requirement. Brokerage firms may impose higher house requirements and may raise them. In a typical long-only margin account, equity is the current market value of the securities minus the debit balance owed to the firm. If the investor's equity falls below the applicable maintenance requirement, then the account has a margin deficiency. The firm may issue a margin call requiring additional cash or securities, or it may liquidate positions to eliminate the deficiency.
Under many margin agreements, a firm may sell securities without first consulting the investor and may choose which positions to sell. Firms may also increase house requirements without advance notice. Investors should therefore understand the margin agreement, borrowing costs, maintenance requirements, and the possibility of forced sales before trading on margin.
[Last reviewed in July of 2026 by the Wex Definitions Team]
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