Margin Calls: The Arithmetic Behind a Forced Sale

Two sets of percentages, two different jobs

A margin account has two thresholds, and confusing them is the most common source of surprise.

The initial requirement answers: how much equity must the customer put in to open the position? In the US that number comes from Regulation T. The rule sets the requirement for a margin equity security at “50 percent of the current market value of the security or the percentage set by the regulatory authority where the trade occurs, whichever is greater.” A short sale of a non-exempt security is treated differently: “150 percent of the current market value of the security”, or 100 per cent where a security exchangeable or convertible within 90 calendar days without restriction is held.

The maintenance requirement answers a different question: how much equity must remain for the position to stay open? That number comes from FINRA Rule 4210, and it is lower than the initial requirement — deliberately, because it is a floor for an ongoing position rather than a deposit at entry.

The table is the regulatory minimum. It is not the number in a customer’s agreement. Firms set house requirements, and a firm may require more than the rule; that is why two brokers can issue a call on the same position at different prices.

What equity means in the arithmetic

Equity is not the position’s value. It is the position’s value minus what is owed.

For a long position: equity = market value − debit balance.

For a short position the sign flips in an important way: the customer has sold borrowed securities and holds the proceeds, and the obligation grows as the price rises. Equity = proceeds + deposited collateral − current market value of the borrowed security. A rising price reduces equity, which is why a short position can produce a call in a rally.

The ratio that matters is equity divided by current market value. Two things happen when the price falls (for a long position): the numerator falls, and the denominator falls too. The ratio therefore falls faster than the price, which is the mechanical reason calls arrive sooner than a customer expects.

At the 25 per cent maintenance floor, this account has reached the line. It has not breached it — but it has no room left, and the next tick down produces a call. Note that the price fell 20 per cent while the equity ratio fell from 40 to 25: the ratio moved by more than a third of its value in the same move.

What a call actually asks for

A maintenance call asks the customer to restore the account to the required level. There are two ways to do it: deposit cash or additional marginable securities, or reduce the position. Both restore the ratio; they do different things to the risk.

Depositing cash keeps the exposure and lowers the leverage. Selling part of the position lowers both. A customer who deposits cash to meet a call in a falling market has kept the same position with more of their own money in it; a customer who sells has accepted the loss on the sold portion. Neither is automatically right, and the choice is a risk decision rather than a bookkeeping one.

The amount of the call is not the amount needed to return to the initial requirement. It is the amount needed to return to the maintenance requirement — or to the firm’s higher house requirement, if that is what the agreement says.

Why the broker does not have to wait

A margin agreement is a pledge of collateral. When the collateral’s value falls below the agreed threshold, the lender’s remedy is to realise it. The rule does not create a waiting period, and a firm that decides to give a customer a day to respond is making a commercial choice rather than following a legal requirement.

That asymmetry is the part worth internalising. The customer learns about the call when the firm chooses to send it; the firm can act when the agreement allows. In a fast market the gap between those two events can be the whole story.

Where crypto margin differs

Crypto venues publish leverage tiers and a liquidation price, and they liquidate automatically when the margin ratio is breached. There is no broker in the middle to make a discretionary call, and there is no Rule 4210 floor — the venue’s schedule is the whole rulebook.

The arithmetic is recognisably the same: equity against notional, with a maintenance threshold and a liquidation engine behind it. The governance is not. A US securities account has a regulated minimum, a disclosure obligation and a firm that can be examined on how it applied both. A crypto venue has its own published terms, and the customer’s protection is whatever those terms say.

That difference does not make one system safer. It makes them different, and it makes carrying a percentage from one to the other a mistake.

The three numbers to know before opening the position

1. The firm’s maintenance requirement, from the customer agreement rather than from the rule.
2. The price at which equity reaches that requirement, computed from market value and debit rather than estimated from the entry price.
3. The firm’s liquidation policy — whether it calls first, how long it waits, and what it sells.

The rule’s percentages tell you the floor beneath the floor. The agreement tells you where your account actually stands.

Risk note. The initial-margin and maintenance-margin percentages in this article were read from 12 CFR 220.12, the definitions in 12 CFR 220.2 and FINRA Rule 4210 on 2026-10-27. Firms may impose higher requirements, and rules change; read the current rule text and your own margin agreement. Nothing here is investment advice.