Can you buy stocks on margin? Full Guide

Can you buy stocks on margin? Full Guide

Can you buy stocks on margin is a common question for new and experienced investors alike. Yes — you can buy stocks on margin if your brokerage approves a margin account and you meet regulatory and broker requirements. Buying on margin means borrowing money from a broker to purchase tradable securities, increasing buying power but also amplifying risk. This guide explains the rules, mechanics, costs, risks, and practical steps so you can understand whether margin trading fits your objectives.

Definition and basic concept

Buying on margin means using borrowed funds from your broker to purchase securities. In a margin account, the broker lends you part of the purchase price and holds the bought securities (and sometimes other eligible assets in the account) as collateral. The loan increases your buying power relative to a cash account where purchases must be fully funded.

Key contrasts with a cash account:

• Cash account: you pay the full purchase amount with your own funds.
• Margin account: you supply part of the purchase (the equity portion) and borrow the rest from the broker.

Common shorthand: "buying on margin" = leveraged exposure to stocks or other marginable securities. The phrase "can you buy stocks on margin" often implies questions about eligibility, rules, and safety.

Regulatory framework and rules

In the United States, margin trading is governed by a mix of federal rules and self-regulatory guidance:

• Regulation T (Federal Reserve): sets initial margin requirements for many U.S. securities transactions. The standard initial margin requirement is 50% of the purchase price for a long stock purchase (you must provide at least 50% of the cost in equity at the time of purchase). This rule applies to broker-dealers extending credit to customers.

• FINRA and broker maintenance rules: after the initial purchase, FINRA and many brokers require a minimum maintenance margin — often 25% of the market value of the position for long stocks, although many brokers set higher internal maintenance levels (commonly 30% or more). Maintenance margin is the minimum equity that must be maintained in the account to secure the loan.

• Broker “house” requirements: brokers can impose stricter initial and maintenance requirements than regulation. They also set margin rates, eligible securities, and the schedule of marginable values (loan/value percentages by asset class).

• Disclosures and agreements: opening a margin account requires signing a margin agreement that discloses risks, interest rates, collateral rights, and default remedies. Brokers must provide investor education and relevant disclosures.

Note: rules and exact percentages differ by jurisdiction. This article focuses on U.S. equities and U.S.-regulated brokerage practice unless otherwise noted.

How margin trading works (mechanics)

Basic mechanics:

1. Open a margin account and receive approval from the broker. Approval typically depends on experience, financial situation, and the broker’s suitability checks.
2. Deposit initial funds. For a Regulation T long stock purchase, you generally must deposit at least 50% of the purchase price (or meet the broker’s higher requirement).
3. Buy stock using a combination of your equity and borrowed funds. The broker extends credit up to its allowed loan value.
4. Interest accrues on the borrowed amount daily and is typically billed monthly.
5. Monitor the account: if market moves reduce your equity below maintenance margin, a margin call (maintenance call) occurs and you must add funds or sell securities.

Key terms:

• Initial margin: the percentage of the purchase the investor must provide up front (Reg T = 50% commonly).
• Maintenance margin: the minimum equity percentage required after purchase (often 25% or higher).
• Buying power: amount of total exposure your account can hold, often calculated as equity × loan multiplier (depends on the instrument and margin rules).
• Margin equity: market value of holdings minus margin loan.

Example of leverage effects (simple):

• Cash available: $10,000. With Reg T margin at 50%, buying power for long stock buys is $20,000 (you supply $10,000, borrow $10,000).
• Stock rises 10%: position becomes $22,000; equity = $22,000 − loan $10,000 = $12,000 → 20% gain on original $10,000.
• Stock falls 10%: position becomes $18,000; equity = $8,000 → 20% loss on original $10,000. Leverage doubles both gains and losses.

Marginable securities and eligibility

Not all securities qualify for margin loans. Brokers maintain loan/value schedules and mark many securities ineligible or subject to lower loan percentages.

Typically marginable:

• Most U.S.-listed common stocks and exchange-listed ETFs.
• Many large-cap, liquid securities with established markets.

Typically not marginable or restricted:

• Penny stocks and many low-priced OTC securities.
• Certain thinly traded or newly issued equities.
• Some mutual funds (often require a hold period), certain options positions, and many complex instruments unless explicitly allowed.

Brokers may assign lower loan-to-value (LTV) for volatile or illiquid equities. Always check the broker’s marginable list and schedule.

Interest, billing, and repayment

Margin interest is the cost of borrowing from the broker. Important features:

• Rate structure: margin rates typically vary with the amount borrowed (tiered schedule). Institutional or high-balance accounts often get lower rates.
• Daily accrual: interest is calculated daily on the outstanding loan balance (annual rate divided by 365, multiplied by daily balance) and typically posted monthly.
• Billing and repayment: brokers will bill interest monthly and may automatically debit from your account. If your equity falls or positions are liquidated, you remain responsible for repaying the loan and accrued interest.

How interest affects returns:

• Interest reduces net profit. In leveraged trades with small returns, interest can wipe out gains.
• For longer-term positions, compounding interest may materially change the risk/return profile compared to a cash purchase.

Example: Borrow $10,000 at 8% annual margin rate for one month → interest ≈ $10,000 × 0.08 × (30/365) ≈ $65.75. Over longer periods or with higher rates, the cost compounds.

Margin calls, liquidation, and account risk

A margin call occurs when account equity falls below the maintenance margin requirement. Key points:

• Notification: brokers may or may not provide prior notice; they can demand immediate remedial action (add cash or liquidate positions).
• Forced liquidation: brokers have broad contractual rights to sell assets in the account to satisfy margin obligations without prior consent and without selecting the assets you prefer.
• Partial calls vs. full margin deficiency: a broker can sell enough assets to restore compliance or liquidate entire positions depending on the shortfall and broker policy.

Risks associated with margin calls and liquidation:

• Locked-in losses: forced sales in falling markets can lock in losses and may occur at unfavorable prices.
• Potential for owing more than your account value: if rapid declines occur or if the account is subject to overnight price gaps or illiquid securities, you can owe more than the equity in the account.
• Cross-margining exposure: brokers can use securities across accounts (if allowed by your agreement) to meet calls; read account agreements carefully.

Benefits and common uses

Why investors use margin:

• Increased buying power: magnify exposure to positions without depositing equivalent cash.
• Portfolio diversification: borrow to add new positions or rebalance without selling existing holdings.
• Short selling: margin is required to borrow securities to short and to cover potential losses.
• Advanced strategies: certain options spreads and leverage-dependent strategies require a margin account.
• Line of credit: margin loans can act as a flexible, asset-backed line of credit for other purposes (subject to broker rules).

Risks and disadvantages

Major risks of buying on margin:

• Amplified losses: leverage magnifies adverse moves, potentially exceeding your initial equity.
• Margin calls and forced liquidation: can force sales at bad prices, compounding losses.
• Interest costs: prolonged borrowing reduces returns and can convert winning trades into losers.
• Volatility and liquidity risk: volatile or illiquid securities can lead to rapid margin increases and sale at wide spreads.
• Emotional / behavioral risk: leverage can encourage excessive risk-taking.

Important caution: Buying on margin is not suitable for all investors. It requires understanding downside scenarios, having liquidity to meet calls, and disciplined risk management.

Broker practices and examples

Major brokerages differ in how they implement margin rules. Common broker practices include:

• Internal maintenance margins above FINRA minimums (many require 30% or higher for individual stock positions).
• Tiered margin interest rates that decrease with larger loan balances.
• Special margin rules for day trading and pattern day trading (PDT) accounts — PDT rules may require minimum equity (e.g., $25,000) for pattern day traders in the U.S.
• Tools: margin calculators, real-time margin monitors, and automatic margin alerts.

Representative broker features (educational summary):

• E*TRADE-style margin: online calculators, tiered rates, maintenance thresholds.
• Interactive Brokers-style margin: sophisticated margin models, competitive tiered pricing, and portfolio margin (for eligible accounts).
• Fidelity-style margin: educational resources on interest, risks, and account requirements.

As of 2026-01-21, per business reporting that covered broker performance for Q4 CY2025, Interactive Brokers reported robust growth in revenue and transaction volume. These broader market developments illustrate ongoing investor demand for margin and trading services in the brokerage industry.

Standard margin vs. portfolio margin

Standard margin (Reg T / house rules):

• Rules based on fixed initial and maintenance percentages per security type (e.g., 50% initial for most stocks; 25% maintenance minimum).
• Simpler, generally lower admin requirements, available to most retail accounts.

Portfolio margin (risk-based margin):

• Designed for sophisticated and institutional investors; margin requirements determined by overall portfolio risk rather than fixed percentages.
• Typically increases buying power for diversified, hedged portfolios by recognizing offsetting risks.
• Requires approval by the broker and often minimum equity thresholds (commonly $100,000 or more, varying by broker and jurisdiction).

Portfolio margin can materially increase buying power but also increases leverage exposure and complexity; it is intended for experienced traders.

Margin and short selling / options

Short selling:

• To short a stock, you borrow shares from the broker and sell them on the market, creating a short position. Margin is required because the broker needs collateral to secure the potential obligation if the stock rises.
• Short positions carry theoretically unlimited risk because a stock’s price can rise without bound, increasing margin requirements and the chance of a margin call.

Options and margin:

• Buying options typically requires less margin (premium only). Writing (selling) options often requires margin because of potential assignment and unlimited/large risk for uncovered positions.
• Complex options strategies (spreads, straddles, uncovered positions) have varying margin needs; brokers categorize strategies by risk and set margin requirements accordingly.

Margin in cryptocurrency vs. traditional equities

Key contrasts between crypto exchange margin and traditional broker margin:

• Regulation: U.S.-regulated brokers are subject to federal rules (Reg T, FINRA/SEC). Many cryptocurrency platforms operate under different regulatory frameworks and in some cases under lighter oversight (varies by jurisdiction).
• Custody and legal rights: Broker-dealers follow clear custody rules and securities laws; some crypto platforms custody private keys or use custodial models with differing bankruptcy and creditor treatment.
• Leverage levels: Crypto platforms often offer higher leverage (sometimes very high) compared with typical equity margin limits, due to different product structures and market practices.
• Volatility and margin behavior: crypto markets can be more volatile; exchanges may use aggressive intraday margin rebalancing, frequent liquidation thresholds, and higher maintenance margins.
• Counterparty and platform risk: crypto margin often entails counterparty risk to the exchange; choose trusted, regulated platforms and custody solutions.

If you are comparing stock margin with crypto margin, consider regulatory protections, margin mechanics, and the role of custody. For crypto margin users, Bitget is a platform-oriented recommendation for derivatives and spot margin services; for custody, consider Bitget Wallet as a recommended Web3 wallet in the Bitget ecosystem.

How to open and use a margin account

Practical steps:

1. Research: understand margin mechanics, risks, and broker terms.
2. Apply: select a broker and apply for a margin account. The application asks about experience, financial situation, and suitability.
3. Read and sign the margin agreement: this contract details interest, liquidation rights, and other terms.
4. Fund the account: deposit required initial equity.
5. Get approved and trade: after approval, you can buy marginable securities within your buying-power limits.
6. Monitor: keep an eye on maintenance margin, account alerts, and market movements.

Typical account minima and approvals:

• Some brokers have minimum equity to open a margin account; pattern day trading rules require minimum balances for frequent day traders.
• Approval levels for advanced products (portfolio margin, short margin privileges, options writing) often require higher experience and account equity.

Recommended risk controls:

• Set position-size limits to avoid concentrated margin exposure.
• Keep cash or liquid assets on hand to meet possible margin calls.
• Consider stop-loss orders and pre-defined exit rules, but remember stop orders are not guaranteed in gaps or illiquid markets.

Tax, accounting, and reporting considerations

Tax treatment and recordkeeping:

• Margin trades themselves do not change the tax character of gains/losses. Capital gains or losses are reported when positions are sold or closed.
• Margin interest: in many jurisdictions, margin interest may be deductible for investment interest purposes (subject to limits and local rules). In the U.S., margin interest can be deductible as investment interest expense against investment income, but rules and limitations apply.
• Brokers issue tax forms (e.g., Form 1099 in the U.S.) that report proceeds, dividends, and realized gains. Keep accurate records of purchases, sales, interest paid, and dates to calculate short- vs. long-term gains.

Consult a tax professional for personal tax advice and deductions related to margin interest.

Best practices and risk management

Safeguards for margin trading:

• Limit leverage: avoid using full borrowing capacity; maintain an equity cushion above maintenance margin.
• Position sizing: limit any single position’s share of total margin exposure.
• Monitor frequently: markets move fast; review margin status daily or set real-time alerts.
• Use margin calculators: many brokers provide tools to estimate buying power, margin requirements, and the effect of price moves.
• Keep liquidity: maintain readily available cash or liquid securities to meet calls.
• Understand broker policies: review margin agreement clauses on forced liquidation, cross-collateralization, and interest accrual.

Risk-averse strategies:

• Use margin for short-duration or hedged strategies rather than long buy-and-hold financed solely by margin interest.
• Consider alternatives such as options hedges or non-levered diversification if leverage is unnecessary.

Frequently asked questions (FAQ)

Q: Can you lose more than your deposit when buying on margin? A: Yes. If markets move quickly or if there are large gaps in price, forced liquidations can leave you owing more than your account equity. Brokers can demand additional cash, and you are liable for any deficit.

Q: Do all brokers offer margin? A: No. Most full-service and online broker-dealers offer margin accounts, but product availability varies. Approval depends on account type, experience, and regulatory constraints in your jurisdiction.

Q: What is a margin call? A: A margin call is a demand by the broker to restore account equity to meet maintenance margin requirements. You can satisfy a call by depositing cash or eligible securities or by reducing positions.

Q: How is margin interest calculated? A: Margin interest typically accrues daily on the outstanding loan balance and is billed monthly. The daily rate is annual rate/365, multiplied by daily loan amount; monthly totals are summed and charged.

Q: Is margin interest deductible? A: In many tax jurisdictions, including the U.S., margin interest may be deductible as investment interest against investment income subject to rules and limits. Consult a tax advisor.

Examples and worked scenarios

Example A — Profitable margin trade

• Cash equity: $10,000.
• Reg T initial margin: 50% → total purchasing power for a long stock position = $20,000.
• Buy 200 shares at $100 (total cost = $20,000). You put in $10,000 and borrow $10,000.
• Stock rises 25% to $125 → position value = $25,000.
• Equity = $25,000 − loan $10,000 = $15,000.
• Return on original $10,000 equity = ($15,000 − $10,000) / $10,000 = 50%.
• If margin interest over holding period is $200, net return = (50% on equity less $200 cost) → small reduction but still positive.

Example B — Losing trade that triggers a margin call

• Starting same as above: $10,000 equity, $10,000 loan, 200 shares at $100.
• Broker maintenance requirement = 25%.
• If stock falls to price P, equity = 200×P − $10,000. Maintenance requirement means equity / market value ≥ 25%.
• Solve: (200P − 10,000) / (200P) ≥ 0.25 → 200P − 10,000 ≥ 50P → 150P ≥ 10,000 → P ≥ $66.67.
• If price drops below $66.67, the account fails maintenance. At P = $60, equity = $12,000 − $10,000 = $2,000 → equity/market value = 2,000/12,000 = 16.67% (below 25%). Broker may issue margin call or liquidate.
• Loss on original equity at P = $60: equity fell from $10,000 to $2,000 → 80% loss.

Example C — Effect of interest over time

• Borrow $10,000 at annual rate 8% for 1 year; interest ≈ $800.
• If stock gains 10% on a $20,000 position to $22,000, equity = $12,000. Gross return on initial $10,000 = 20% = $2,000.
• Net return after interest = $2,000 − $800 = $1,200 → 12% net on equity.
• If stock gains only 5% (position to $21,000 → equity $11,000 = 10% gross), interest $800 reduces net to $200 (2% net).
• Interest materially compresses returns for modest gains.

References and further reading

(Selected authoritative sources; titles and publishers listed for further lookup.)

• SEC Investor Bulletin: "Understanding Margin Accounts" — official regulatory guidance on margin accounts and risks.
• Federal Reserve Regulation T — rules on initial margin.
• FINRA materials on margin and maintenance requirements.
• Investopedia — "Buying on Margin: How It's Done, Risks and Rewards" and other educational articles on margin.
• Bankrate — "Buying On Margin: The Risks And Rewards Of Margin Trading".
• Fidelity — "Understanding the benefits and risks of margin" educational pages.
• E*TRADE & Interactive Brokers educational resources on margin and portfolio margin.

As of 2026-01-21, per business reporting aggregated in market coverage, Interactive Brokers reported strong Q4 CY2025 results (revenue $1.64 billion), reflecting continued client trading activity and institutional demand in brokerage services. These market-level data points illustrate that demand for trading and margin services remains a material factor in brokerage operations and margins offered to clients.

Notes on scope and limitations

This article focuses on margin for tradable securities (U.S. equities, ETFs, and related instruments). Rules and availability differ by jurisdiction and by type of platform (regulated broker-dealers vs. crypto exchanges). This is educational content, not investment advice. Always read your broker’s margin agreement and consult qualified professionals for tax or legal questions.

Bitget and crypto margin note

If you are exploring margin or leverage in crypto markets, consider platform selection and custody carefully. Bitget offers margin and derivatives services for cryptocurrency traders and integrates custody solutions through Bitget Wallet. Crypto margin products differ from U.S. equity margin in regulatory oversight, available leverage, and margin call behavior — so approach crypto margin with heightened attention to volatility and platform terms.

More practical tips and final reminders

• Before using margin, simulate worst-case scenarios and confirm you can meet potential margin calls without disrupting your finances.
• Keep diversification and hedging in mind; concentrated margin bets are especially risky.
• Use broker margin calculators and real-time alerts to manage exposures.
• Read account agreements carefully — forced liquidation clauses are standard and brokers can act quickly.

Further explore Bitget educational resources and Bitget Wallet for secure custody options if you plan to trade or use margin in crypto markets. For U.S. equities, consult your regulated broker’s margin documentation and the SEC/FINRA guidance listed above.

Frequently referenced figures (for context)

• Regulation T typical initial margin: 50% (U.S. long stock purchases).
• Typical FINRA minimum maintenance margin: 25% (some brokers require more).
• Example portfolio margin minimum equity (varies): often $100,000 or more to qualify.
• Margin interest: tiered and varies widely; common retail ranges in recent years have been from low single digits for very large institutional lines to high single digits for smaller retail loans — always check current broker rates.

Further exploration: review broker-provided margin calculators, practice with paper trading or smaller positions, and if you engage in crypto margin, prefer regulated venues and secure wallets like Bitget Wallet.

Ready to learn more about margin rules for specific accounts? Explore margin tools and educational content from your broker and Bitget’s learning hub to compare approaches for stocks and crypto.