SIE Ready⚡ Trading & Settlement · Lesson 5 of 6 · 7 min
Buying on Margin: 50% In, 25% to Stay
💳 Margin lets a customer buy $20,000 of stock with $10,000. It also lets a 25% drop do the damage of a 50% one.
💡 Key idea
Reg T: 50% to buy. FINRA: at least $2,000 equity and 25% maintenance on long stock. Equity = market value − debit.
🧠 Why it matters
In a margin account the firm lends part of the purchase price. REGULATION T (Federal Reserve) sets INITIAL margin at 50%: buy $20,000 of stock, deposit $10,000, borrow $10,000 (the DEBIT). EQUITY = market value − debit. FINRA Rule 4210 requires at least $2,000 of equity in a margin account and MAINTENANCE of at least 25% of market value for long stock (many firms set higher 'house' levels). If the stock falls to $13,000, equity is $3,000, about 23%: a MAINTENANCE CALL. Customers pledge margin securities as collateral (HYPOTHECATION). Reg T payment is due within the settlement cycle plus two business days (T+3 today). Day trading: FINRA replaced the pattern day trader test and its $25,000 minimum with intraday margin standards effective June 4, 2026. Firms that need more time may phase in until Oct 20, 2027, and until a firm switches it may still apply the old PDT rules.
📈 In the real world
📉 Lena, a fictional customer, buys $16,000 of stock on margin, depositing $8,000. The stock drops to $10,000. Equity is $2,000, which is 20% of market value, below 25%. Her firm issues a maintenance call; if she does not meet it, the firm may sell her securities.
📌 Takeaways
- Reg T initial margin is 50% of the purchase
- Equity = long market value − debit balance
- FINRA 4210: $2,000 minimum equity, 25% long maintenance
📖 Terms in this lesson
Free-riding: Buying and selling in a cash account without paying for the purchase, which leads Regulation T to freeze the account for 90 days.
Regulation T: The Federal Reserve rule on broker-dealer credit, setting initial margin for stock purchases at 50%.
Maintenance margin: The minimum equity a margin account must keep; FINRA Rule 4210 requires at least 25% of market value for long stock.
Margin call: A demand that a customer deposit cash or securities because account equity has fallen below the required level.
Hypothecation: Pledging customer securities as collateral for the margin loan, agreed to in the margin agreement.
Intraday margin standards: FINRA Rule 4210 standards effective June 4, 2026 that replaced the pattern day trader rules and $25,000 minimum; firms may phase in until October 20, 2027.
✅ Test yourself
A customer buys $30,000 of stock on margin under Reg T. What is the required deposit?
- $15,000
- $7,500
- $30,000
- $2,000
Answer: A · $15,000
Reg T initial margin is 50%: $30,000 × 50% = $15,000. $7,500 is the 25% maintenance level, and $2,000 is FINRA's minimum equity, not the Reg T amount.
A margin account holds $12,000 of stock with a $7,000 debit. What is the equity?
- $19,000
- $5,000
- $3,000
- $7,000
Answer: B · $5,000
Equity = market value − debit = $12,000 − $7,000 = $5,000. Adding the two ($19,000) or quoting the loan ($7,000) confuses the debit with equity.
Which rule sets the 50% initial margin requirement for stock purchases?
- MSRB Rule G-17
- FINRA Rule 2121
- SEC Regulation SHO
- Federal Reserve Reg T
Answer: D · Federal Reserve Reg T
The Federal Reserve's Regulation T sets initial margin. FINRA Rule 4210 sets minimum and maintenance requirements; 2121 is fair pricing, Reg SHO is short sales, and G-17 is fair dealing for munis.
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