How Margin Accounts Work
A margin account lets you borrow from your broker to buy more stock than your cash alone allows. Here is how margin loans work, the rules that limit them and how leverage magnifies both gains and losses.
Borrowing to invest
In a margin account, your broker lends you money using your stocks as collateral. You pay interest on the loan, and the securities you buy are pledged to the broker. Under the Federal Reserve’s Regulation T, you can generally borrow up to 50% of the purchase price of eligible stocks. Opening a margin account requires at least $2,000 in equity under industry rules.
Leverage magnifies results
| Cash only | With margin | |
|---|---|---|
| Your money | $10,000 | $10,000 |
| Borrowed | $0 | $10,000 |
| Stock bought | $10,000 | $20,000 |
| Stock rises 20% | +$2,000 (+20%) | +$4,000 (+40%) |
| Stock falls 20% | −$2,000 (−20%) | −$4,000 (−40%) |
| Stock falls 50% | −$5,000 (−50%) | −$10,000 (−100%) |
Hypothetical example before interest and commissions.
The cost of borrowing
Margin interest accrues daily and is charged monthly. Rates vary widely by broker and loan size and usually sit well above the Federal Reserve’s target rate, which was 3.75% to 4.00% after the September 2026 hike. At a hypothetical 10% rate, borrowing $10,000 for a year costs $1,000, so the stock must rise 10% on the borrowed part just to break even on interest.
Margin rules to know
- Initial margin: generally 50% for stocks under Regulation T.
- Maintenance margin: at least 25% equity under industry rules; many brokers require 30% or more.
- Brokers can raise requirements at any time, especially for volatile stocks.
- Not every stock is marginable; many low-priced stocks are not.
Key takeaways
- Margin means borrowing from your broker against your stocks.
- Regulation T generally allows borrowing up to 50%.
- Leverage doubles gains and losses at 2 to 1.
- Interest costs must be overcome before you profit.