Margin loan

A margin loan is a loan from a brokerage secured by the investor’s portfolio. Purpose loans, used to buy securities, are governed by Federal Reserve Regulation T, which currently limits initial margin to 50% of the value of marginable securities. Maintenance margin under FINRA rules is 25%, and most brokers set house requirements higher at 30% to 35%. If equity falls below the maintenance requirement, the broker issues a margin call, demanding more cash or forcing a sale. Non-purpose margin loans (for home purchase, tax payment, etc.) face similar collateral rules but different regulatory treatment.

Example: an investor holds $500,000 of diversified equities and buys $200,000 more on margin. The account shows $700,000 of securities and $200,000 of margin debt. If the portfolio drops 30% to $490,000, equity falls to $290,000, or 59%. That is still above the 30% maintenance threshold. A 50% drop to $350,000 produces equity of $150,000, or 43%, still above threshold. A 70% drop triggers a margin call.

Common mistake: using margin on concentrated single-stock positions. Maintenance requirements often rise to 50% or 100% for single stocks, so a moderate decline can trigger forced liquidation.

Margin loans matter at opportunistic tax payment funding, short-term bridges, and covered-call income strategies with additional collateral.