Margin and Leverage

Scope. This article explains what borrowing to hold a position does in both directions, what a margin call is, and what forced liquidation means. It gives no guidance on how much leverage to use, and none on whether to use any. Regulatory figures are reported as what the rule requires — they are not levels this portal endorses, and firms commonly require more. What the margin agreement authorises a firm to do with the securities belongs to Cash Accounts and Margin Accounts; what exposure does to long-run compound growth belongs to Position Sizing: The Arithmetic. Neither is repeated here. MarketClue lends nothing and offers no leverage. Figures are small non-canonical illustrations. United States rules, verified 17 August 2026.

The mechanism is simple and the consequences are not, because borrowing changes three separate things at once: the size of the return, the size of the loss, and — the part usually missed — who decides when the position ends.

The requirements

Firms routinely require more than the maintenance minimum — figures around 30% to 40% are common — and may raise their requirement on a security or an account at their discretion, including while a position is open. The regulatory numbers are floors, not the terms anyone is operating under.

Amplification, in both directions

Buying $10,000 of securities with $5,000 of cash and a $5,000 loan — the maximum initial leverage Regulation T permits, and a two-to-one position.

The amplification is exactly symmetric — every price move doubles. That symmetry is real and it is not the whole picture, because two things attach only to the downside.

The call

Equity must stay above the maintenance requirement. Equity is the position's value less the loan, and the loan does not shrink when the value does.

With a $5,000 loan and a 25% maintenance requirement, a call arises when the position's value falls to $6,666.67 — because at that value equity is $1,666.67, which is exactly 25% of it. That is a decline of 33.3% from the purchase price.

Worked example — a 33.3% fall in the security produces a demand for money. At that point the holder must deposit cash or securities, or reduce the position. The demand does not depend on their view, their horizon, or whether they still believe the original reasoning. And a 50% decline eliminates the equity entirely: an unlevered holder down 50% still owns half of something, while a two-to-one holder down 50% owns nothing and has repaid the loan out of the whole remaining value. Two further facts make the downside worse than the symmetry above suggests. Interest accrues on the loan continuously, at a rate the firm sets and can change, so the position must outperform the borrowing cost merely to break even — an unlevered position has no such hurdle. And the maintenance requirement itself can be raised while the position is open, which means the trigger price can move toward the current price without the price having moved at all. MarketClue suggests no level of leverage and publishes no buying-power calculator. Figures are illustrative and describe no actual security. (The trigger solves (V − loan) ÷ V = maintenance rate; at a firm requirement of 30% or 40% it arises at $7,142.86 or $8,333.33 — declines of 28.6% and 16.7% — which is why the regulatory floor is not the number to plan around.)

Forced liquidation

If a call is not met, the firm may sell. The terms of that power are the part of the arrangement least understood before it is used.

The firm may sell without further consultation. It may choose which holdings to sell, and it is under no obligation to select the ones the customer would have chosen. It need not wait for a better price — and the conditions producing the call are usually the conditions in which depth is thinnest, so the sale itself is likely to be poorly executed. And if the proceeds do not cover the loan, the customer remains liable for the shortfall.