What Is a Maintenance Call in Margin Trading?

Margin trading allows investors to borrow money from their broker to buy securities, increasing potential returns but also amplifying risk. To protect both the investor and the brokerage, regulations require a minimum level of equity in a margin account. If this equity falls below a certain threshold, the broker may issue a maintenance call.

Purpose of a Maintenance Call

A maintenance call ensures an investor maintains enough equity in their margin account to cover potential losses. When an investor buys securities with borrowed funds, they must contribute a portion of their own capital. If the value of those securities declines, the investor’s equity shrinks, increasing the risk that the brokerage may not recover the loaned funds. The maintenance call requires the investor to restore their equity before the situation worsens.

Brokerages issue these calls to protect themselves from financial exposure. Since they lend money to investors, they need to ensure the purchased securities retain enough value to cover the outstanding loan. If an investor’s equity falls too low, the brokerage risks losses if the investor defaults. Requiring additional funds or securities helps reduce this risk.

Maintenance Requirements in Margin Accounts

Regulators and brokerages impose specific maintenance requirements to keep margin accounts adequately funded. The Financial Industry Regulatory Authority (FINRA) sets a minimum maintenance margin of 25%, meaning an investor must maintain at least 25% of the total market value of their securities as equity. However, many brokerages enforce stricter requirements, often 30% to 40% or more, depending on the securities’ risk profile.

Some asset classes and trading strategies require even higher maintenance thresholds. Volatile stocks, leveraged ETFs, and concentrated positions in a single security often demand greater equity levels due to their potential for rapid price swings. Brokerages may also adjust margin requirements based on market conditions, increasing them during periods of heightened volatility.

Investors should be aware of house margin requirements, which go beyond regulatory minimums. A brokerage may impose a 50% maintenance margin on highly speculative stocks or require a higher percentage for accounts engaging in short selling. These policies vary widely, making it important for traders to review their broker’s guidelines regularly.

Factors That Trigger a Maintenance Call

A maintenance call is typically triggered when the value of an investor’s margin account declines due to market movements. If securities held on margin drop significantly, the equity in the account may fall below the brokerage’s required threshold. Since margin accounts are subject to daily mark-to-market adjustments, even short-term price swings can lead to a call.

Holding a large percentage of borrowed funds in a single stock or sector increases the likelihood of a maintenance call. A diversified portfolio helps mitigate risk, but concentrated positions expose the account to sharp declines if that asset underperforms. Brokerages closely monitor accounts with concentrated holdings, as a sudden price drop in one stock can quickly reduce overall equity.

Dividend payments and corporate actions can also impact margin requirements. If a company issues a dividend, the investor may need to cover the tax liability or adjust their margin balance. Reverse stock splits can lead to unexpected margin deficiencies, as they reduce the number of shares held while maintaining the total loan amount, altering the loan-to-equity ratio.

Consequences of Noncompliance

Failing to meet a maintenance call can lead to immediate repercussions. If the required funds or securities are not deposited promptly, the brokerage has the right to liquidate positions without prior notice. This forced liquidation can result in significant losses, especially if the securities sold were expected to rebound. Investors have no control over which assets are liquidated, as brokers prioritize minimizing their risk exposure.

Beyond financial losses, noncompliance can damage an investor’s relationship with their brokerage. Accounts that repeatedly fail to meet margin requirements may face additional restrictions, such as reduced buying power or a suspension of margin privileges. Some firms may impose higher margin requirements on accounts with a history of maintenance calls, making it more difficult for investors to use leverage in the future.

Variations Among Broker Policies

Brokerages have discretion in setting their own maintenance margin policies, leading to differences in how maintenance calls are handled. While FINRA establishes a minimum requirement, firms often impose stricter rules based on their risk tolerance and client profile. Some brokers require higher maintenance margins for accounts with frequent leveraged trades, while others adjust requirements dynamically based on market conditions. These policies can change without prior notice, making it important for investors to stay informed.

Some firms provide a grace period for investors to meet a maintenance call, while others liquidate positions immediately if the margin deficiency is not addressed by the end of the trading day. Additionally, brokers may charge fees for failing to meet a call, increasing the cost of noncompliance. Investors who trade on margin should carefully review their brokerage’s policies to avoid unexpected liquidations or penalties.