What is a Margin Call? Definition, Formula, and Example
A margin call is a broker's demand for additional cash or marginable securities when account equity falls below the maintenance margin requirement, after which the broker may liquidate positions without further notice.
What is a Margin Call?
A margin call is a broker's demand that a customer deposit additional cash or marginable securities into their account when the account's equity falls below the maintenance margin requirement. If the customer fails to meet the call within the broker's deadline (often same-day or T+1), the broker liquidates positions to restore compliance—frequently at the worst available prices and without any further notice. Margin calls apply only to margin accounts, not cash accounts, and are a structural risk of all leveraged trading.
How a Margin Call is Calculated
Two regulatory layers govern margin in U.S. equities:
- Reg T initial margin — the Federal Reserve requires 50% of the purchase price for new long positions.
- FINRA maintenance margin — minimum 25% of market value for long positions; 30% for short positions.
Most brokers impose "house" margin above the FINRA floor (commonly 30-40% on liquid stocks, 50-100% on volatile or low-priced names).
A margin call triggers when:
Account Equity / Market Value < Maintenance Margin %
The minimum stock price before a call is solved as:
P_call = Loan Amount / (Shares × (1 − Maintenance %))
Worked Example: Long TSLA on Margin
A trader buys 100 shares of TSLA at $300 = $30,000 total cost.
- Cash deposited (Reg T 50%): $15,000
- Margin loan: $15,000
- Maintenance requirement: 30% (broker house rule)
Margin call price:
P_call = $15,000 / (100 × (1 − 0.30))
P_call = $15,000 / 70
P_call = $214.29
If TSLA closes at $214.29 or below, the broker issues a call. At a $210 close: position value = $21,000; equity = $21,000 − $15,000 = $6,000; required equity = $21,000 × 0.30 = $6,300. The shortfall is $300, so the customer must deposit $300 cash—or roughly $1,000 of additional marginable stock—to cure the call.
When Traders Encounter Margin Calls
- Leveraged long positions that decline sharply on gap-down earnings or sector rotations.
- Short squeezes — losses on short positions compound faster than longs because position value rises while equity falls.
- Concentrated portfolios — single-name drawdowns hit account equity disproportionately.
- Volatility expansion events — brokers hike maintenance requirements on names like GME mid-trade, creating calls without any price move.
- Options assignment — short option assignments deliver stock financed on margin, generating instant calls if the underlying gaps.
Limitations and Common Misconceptions
- Calls are not always negotiable — under FINRA Rule 4210, brokers reserve the right to liquidate immediately without contacting the customer. The "call" is a courtesy, not a contractual delay.
- House margin can change without notice — brokers raised maintenance on GME and AMC to 100% in January 2021, instantly creating calls on every leveraged holder.
- Cash account confusion — margin calls apply only to margin accounts; cash accounts face Reg T good-faith violations and 90-day restrictions instead.
- Liquidation order is the broker's choice — the firm picks which positions to sell, often hitting the most liquid (and lowest-conviction) names first.
- Pattern day trader rule — accounts under $25,000 flagged as PDT face additional margin restrictions independent of maintenance calls.
- Crypto and futures use different rules — futures use SPAN margin with intraday calls; crypto exchanges auto-liquidate at 100% loss of posted collateral with no human in the loop.