Margin Trading Explained: How It Works, Margin Calls and the Risks (2026)

How does margin trading work, and what are the risks?

Margin trading means buying securities with money your broker lends you, with the securities in your account as collateral: under the Federal Reserve's Regulation T you may borrow up to 50 percent of the purchase price, and FINRA requires a deposit of $2,000 or 100 percent of the purchase price, whichever is less, before you start. The main risk is that losses grow as fast as gains, and investor.gov warns that you can lose more money than you have invested.

The broker also gets a say in when you sell. If your equity falls below the firm's maintenance requirement, it can demand more cash or securities, and the SEC's investor bulletin notes that your broker may be able to sell your securities at any time without consulting you first. Borrowing costs interest too: on the smallest balance tier, the published rates at four brokers ran from 5.25% at Robinhood to 12.075% at Fidelity and Schwab (checked October 2026).

This page is built from the SEC's investor.gov bulletins and the brokers' own margin and pricing pages, rather than first-hand use of a margin account. It is general information, not financial advice, and investing involves risk; borrowing to invest adds to it.

The three numbers that define a margin account

Every margin account runs on three requirements, and your broker can make each of them stricter.

Equity is the number to watch after you buy: in investor.gov's definition, it is the value of your securities less how much you owe to your brokerage firm. When prices fall, the loan stays the same and your equity shrinks.

Firms routinely go beyond the floors. investor.gov notes that some firms may require you to deposit more than $2,000, that some require you to deposit more than 50 percent of the purchase price, and that many brokerage firms have higher maintenance requirements, typically between 30 to 40 percent. Schwab's rates and requirements page shows what that looks like at one large broker: you need at least $2,000 in cash or marginable securities to begin margin borrowing, the amount you can borrow is typically limited to 50% of the value of marginable securities, and for certain stocks that require a higher maintenance level, that level is in most instances set at 50% (checked October 2026). Schwab also reserves the right to change the margin requirements on your account at any time and without prior notice.

How leverage cuts both ways: investor.gov's example

The SEC's investor bulletin uses one stock to show both sides. You buy a share for $50 and the price rises to $75.

• Paid in full in a cash account: your $25 gain is a 50 percent return on the $50 you invested.
• Bought on margin: you pay $25 in cash and borrow $25 from your broker, so the same $25 gain is a 100 percent return on the money you invested, before the interest you owe on the loan.

Now run it the other way: the stock you bought for $50 falls to $15. Paid in full, you would lose 70 percent of your money. Bought on margin, you lose all of your $25 and would also owe your broker an additional $10 plus the interest on the margin loan.

How a margin call happens

investor.gov walks through the maintenance requirement with round numbers. You buy $16,000 of securities, borrowing $8,000 from your firm and paying $8,000 yourself. The market value drops to $12,000, so your equity falls to $4,000.

• At a firm with a 25 percent maintenance requirement, you need $3,000 of equity, so the $4,000 you have is enough.
• At a firm with a 40 percent requirement, you need $4,800 of equity. Your equity has fallen $800 below the firm's maintenance requirement, and the firm may issue a margin call to deposit more.

Same account, same prices, different outcome: the house requirement decides whether you get a call. What happens next, in the regulator's words:

• You can't add positions. When a margin call occurs, you generally cannot purchase any additional securities in your account until you satisfy the margin call requirements.
• The firm sells if you don't pay. If you are unable to meet the margin call, your firm will sell your securities to bring the equity in your account up to or above its maintenance requirement, and the brokerage firm decides which of your securities to sell.
• A deadline is not a promise. Even if the brokerage firm notifies you that you have a certain number of days to cover the shortfall, it still may sell your securities before then.
• There may be no call at all. Your broker may not be required to make a margin call or otherwise tell you that your account has fallen below its maintenance requirement.

The brokers' own pages agree. Fidelity says a margin call is due immediately and that it can liquidate your assets at any time if your equity is not sufficient; Schwab says it will be allowed to sell securities without your prior approval in order to meet the margin minimum requirement.

What margin costs at four brokers (checked October 2026)

Margin is a loan, and investor.gov reminds borrowers that interest rates can vary substantially between brokerage firms. Here is the published rate on each broker's smallest balance tier, quoted from its own page:

All four tie their rates to a base or benchmark that moves, so treat the table as a snapshot. Three mechanics matter before you borrow:

• Interest accrues daily. Fidelity charges margin interest daily on all settled debit balances, and Schwab calculates interest daily on the amount borrowed and posts it monthly.
• The loan outlives the trade. Like any other loan, Schwab notes, you must repay your margin loan along with interest, regardless of the underlying value of any securities you bought with it.
• Interest raises your break-even point. In investor.gov's words, this interest directly reduces your return on investments, increasing the amount your investment needs to earn to break even.

If you are comparing tastytrade on cost, see current pricing at tastytrade, and our tastytrade review covers the rest of the platform. For a wider look at brokers and trading platforms, see our full shortlist.

The risks investor.gov lists before you open a margin account

The SEC's bulletin says margin accounts can be very risky and they are not appropriate for everyone. Before opening one, it says you should fully understand that:

1. You can lose more money than you have invested.
2. You may have to deposit additional cash or securities on short notice to cover market losses.
3. You may be forced to sell some or all of your securities when falling stock prices reduce their value.
4. Your brokerage firm may sell some or all of your securities without consulting you to pay off your margin loan.
5. You are not entitled to choose which securities your brokerage firm sells to cover the loan.
6. Your brokerage firm can increase its margin requirements at any time and is not required to provide you with advance notice.
7. You are not entitled to an extension of time on a margin call.

The brokers' disclosures echo this. Fidelity warns that you could suffer significant losses, including multiples of your original investment due to a decrease in market value, and Robinhood says margin investing carries the potential to lose more than deposited and that it can change its maintenance margin requirements at any time without prior notice.

Margin and day trading after June 4, 2026

If you plan to buy and sell the same stock within a day, the day-trading rules matter as much as the margin ones, and they are changing. According to investor.gov, FINRA has adopted new intraday margin requirements that replace current day trading margin requirements, including those for pattern day traders. The new requirements took effect June 4, 2026, with a transition period until October 20, 2027, for brokerage firms that need more time to comply.

Under the old rules, a customer designated a pattern day trader faces an increased minimum equity requirement of $25,000 and a cap on purchasing power at four times the maintenance margin excess as of the previous day's close. investor.gov says your brokerage firm might continue operating under the old day trading margin requirements during the transition, or migrate to the new standards sooner, and that you should contact your brokerage firm to understand how the changes affect your account.

Other things a margin account changes

A margin account also changes what you can do, and what the firm can do with your shares:

• Options: firms generally require a margin account to trade options but do not let you use margin to purchase options contracts, and some option-selling strategies may expose you to losses that exceed your initial investment amount.
• Short selling: to short sell at Fidelity, you must have a margin account, and Fidelity notes that short selling and margin trading carry the risk of unlimited losses.
• Securities lending: some margin accounts let the firm lend out your securities to a third party, without notice or compensation, while you have an outstanding margin loan, and you may lose the voting rights on lent shares.
• Transfers: many firms will not allow you to transfer any securities out of a margin account if the account has an outstanding margin loan.
• The default setting: investor.gov warns that some brokerage account applications make margin accounts the default account type, so confirm which account you are opening.

If you would rather start without borrowing at all, our guide to starting with $100 in a cash account explains the cash-account rules, and the step-by-step guide to opening a brokerage account shows where the account-type choice appears.

Questions to answer before you borrow

investor.gov suggests a short self-check before buying securities in a margin account:

• Do you know that margin accounts involve a great deal more risk than cash accounts where you fully pay for the securities you purchase?
• Can you afford to lose more money than the amount you have invested?
• Did you take the time to read and understand the margin agreement?
• Did you ask your broker how a margin account works and whether it is appropriate for you to trade on margin?

Schwab's margin page lists ways to lower the odds of a margin call: keep your portfolio diversified, borrow less than the maximum amount allowed, and consider setting your own personal maintenance level, above which you won't borrow. Margin calls are also as much a test of discipline as of arithmetic; Mark Douglas's Trading in the Zone is a long-running book on trader psychology (Check price on Amazon; see our Trading in the Zone review).

FAQ

Can you lose more than you invest when trading on margin?

Yes. investor.gov puts "You can lose more money than you have invested" first on its list of margin risks, and in its example a $50 stock that falls to $15 wipes out a margin buyer's $25 and leaves them owing the broker an additional $10 plus interest.

How much money do you need to open a margin account?

FINRA's minimum margin is $2,000 or 100 percent of the purchase price of the margin securities, whichever is less, and some firms may require more. Schwab, for example, requires at least $2,000 in cash or marginable securities before you can begin margin borrowing (checked October 2026).

What happens if I can't meet a margin call?

Your firm will sell securities to bring your equity back up to its maintenance requirement, and it decides which ones. You are not entitled to an extension of time, and even when a firm gives you a deadline it still may sell before then.

Do all brokers charge the same margin interest rate?

No. On the pages checked in October 2026, the rate on the smallest balance tier was 12.075% at Fidelity and Schwab, 11.00% at tastytrade and 5.25% at Robinhood, and each rate is tied to a base rate that can move. investor.gov's advice is to carefully consider this expense before opening any margin account.

Is the $25,000 pattern day trader rule still in force?

It is being replaced. investor.gov says FINRA's new intraday margin requirements took effect June 4, 2026, with a transition period until October 20, 2027, so your broker may keep applying the old $25,000 minimum equity requirement for designated pattern day traders until it switches. Ask your broker which set of rules applies to your account.

Sources

1. Investor Bulletin: Understanding Margin Accounts — U.S. Securities and Exchange Commission (Investor.gov) (checked October 2026)
2. Margin Call (glossary) — U.S. Securities and Exchange Commission (Investor.gov) (checked October 2026)
3. Margin Requirements & Interest Rates — Charles Schwab (checked October 2026)
4. Margin loans at Schwab — Charles Schwab (checked October 2026)
5. Margin trading and lending — Fidelity Investments (checked October 2026)
6. Robinhood margin rates — Robinhood (checked October 2026)
7. Commissions and Fees — tastytrade (checked October 2026)