What is Regulation T? Definition, Margin Rules, and Example
Regulation T is the Federal Reserve rule that limits investors to borrowing 50% of a new securities purchase on margin and requires payment within two business days, governing how all U.S. retail margin credit works.
What is Regulation T?
Regulation T is a Federal Reserve Board rule (12 CFR 220) that governs how much credit brokers can extend to customers buying securities. Its core provision: an investor must deposit at least 50% of the purchase price of a marginable security — the "initial margin" requirement — and the broker can lend the other 50%. Reg T also sets the payment window: purchases in a cash account must be paid for within two business days (now effectively aligned with T+1 settlement), and selling a security bought with unsettled cash triggers a good faith violation. Every U.S. retail margin account operates inside Reg T's framework.
How the 50% Rule Works
The math is straightforward. On a $10,000 stock purchase in a margin account, Reg T requires $5,000 of the customer's own equity; the broker lends $5,000 as a margin loan. Buying power in a standard Reg T account is therefore 2× the cash deposited: $25,000 in cash supports $50,000 of stock.
Reg T is the *initial* requirement only. Ongoing maintenance margin is set separately — by FINRA Rule 4210 at a 25% minimum for long positions, and by brokers' house rules, which run 30–40% on volatile names. When equity falls below maintenance, the broker issues a margin call. A key nuance: Reg T margin calls are due in four business days; maintenance calls are due immediately at most brokers.
Portfolio margin accounts, available above roughly $100,000–$125,000 in equity, escape Reg T's 50% rule entirely and use risk-based (TIMS/theoretical) calculations instead — often allowing 6:1 leverage or more on diversified books.
Worked Example: A Reg T Margin Call
An investor deposits $20,000 and buys $40,000 of NVDA at $120 per share — 333 shares, $20,000 of it borrowed. NVDA drops 30% to $84. The position is now worth $27,972; subtract the $20,000 loan and equity is $7,972, or 28.5% of position value. If the broker's house maintenance requirement is 30%, the investor is below it and receives a maintenance call for roughly $420 — but the more dangerous scenario is a 50% decline to $60: position value $19,980, equity −$20, which is a forced liquidation. Reg T capped the initial leverage at 2:1; the maintenance rules determine when the broker pulls the plug.
When Traders Encounter Reg T
Reg T matters in three practical situations: sizing positions in a margin account (the 2× cap on overnight stock buying power), cash-account discipline (liquidating an unsettled purchase is a good faith violation, and three violations in 12 months restricts the account to settled cash for 90 days), and understanding why options and futures have different leverage — options have no loan value under Reg T, and futures fall under CFTC margin, not Reg T at all.
Limitations and Common Misconceptions
Reg T does not limit total leverage — it limits *broker credit at initiation*. Day traders with $25,000+ under the pattern day trader rule get 4:1 intraday buying power because the positions close before Reg T's overnight settlement applies. Reg T also says nothing about maintenance levels; blaming "Reg T" for a 40% house margin requirement is a category error. Finally, Reg T applies to securities credit only — crypto, forex, and futures margin live under entirely different regimes.