Glossary term
Maintenance Margin
Maintenance margin is the minimum equity a margin account must maintain after a position has been opened.
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What Is Maintenance Margin?
Maintenance margin is the minimum amount of account equity that must be maintained after a margin position has been opened. If equity falls below the required level, the brokerage firm may issue a margin call and can sell securities in the account if the deficiency is not resolved.
Maintenance margin is different from initial margin. Initial margin governs how much equity is needed to open a new position. Maintenance margin governs how much equity must remain while the position is held.
Key Takeaways
- Maintenance margin is the ongoing equity requirement for a margin account.
- It helps protect brokers and markets from excessive credit risk.
- FINRA sets maintenance requirements, and brokerage firms may impose stricter house requirements.
- If account equity falls below the requirement, the investor can face a margin call or forced liquidation.
- Maintenance margin can rise for volatile, concentrated, low-priced, leveraged, or option-related positions.
How Maintenance Margin Works
When an investor buys securities on margin, the broker lends part of the purchase price. The investor's equity is the market value of the securities minus the margin loan. As prices move, equity changes. If the securities fall enough, the investor's equity cushion can become too small relative to the broker's loan.
The maintenance margin requirement sets the minimum equity cushion. For many long equity positions, the regulatory maintenance requirement is commonly discussed as 25 percent, but actual requirements depend on the security, account type, strategy, and brokerage house rules. Firms can require more than the regulatory minimum.
Simple Example
Suppose an investor owns $20,000 of stock in a margin account and has a $10,000 margin loan. Account equity is $10,000. If the stock value falls to $13,000 and the loan remains $10,000, equity falls to $3,000. If the applicable maintenance requirement is higher than that equity cushion, the account may face a margin call.
The broker's concern is not the investor's original purchase price. The concern is current collateral value relative to the loan and the required margin percentage.
Margin Call Risk
A margin call requires the investor to add cash, deposit eligible securities, reduce positions, or otherwise restore the account to required levels. The firm may not have to wait for the investor to act. Margin agreements often give brokers the right to sell securities without advance notice to protect the account and the firm.
This is why margin can turn a market decline into a liquidity event. An investor who planned to hold through volatility may be forced to sell at an unfavorable time if the equity cushion disappears.
Regulatory and House Requirements
Requirement type | What it does |
|---|---|
Regulation T initial margin | Limits credit extended when opening many securities positions. |
FINRA maintenance margin | Sets ongoing minimum equity requirements for margin accounts. |
House requirement | Brokerage firm's stricter internal requirement for specific accounts or securities. |
What Changes the Requirement
Maintenance requirements can be higher for volatile stocks, concentrated positions, thinly traded securities, leveraged exchange-traded products, options strategies, short positions, or accounts using portfolio margin. Requirements can also change during stress, which can surprise investors who assume the margin rule is static.
That makes margin risk partly a market risk and partly a financing risk. The account can become riskier even if the investor's view of the security has not changed.
Investors should also distinguish a maintenance call from a broker warning. A brokerage platform may display changing requirements continuously, and the firm can raise requirements before a formal call appears. Watching excess equity, concentration, and borrowing level is more useful than assuming the account is safe until a call is delivered.
The Bottom Line
Maintenance margin is the ongoing equity requirement for a margin account. It matters because falling prices, higher requirements, or concentrated positions can trigger margin calls and forced sales before an investor is ready to exit.