Quick Answer
Regulation T sets initial margin at 50% for nonexempt securities; FINRA maintenance minimums are 25% (long) and 30% (short); and the account minimum equity is $2,000. Long equity is Long Market Value minus Debit Balance; short equity is Credit Balance minus Short Market Value. The Special Memorandum Account (SMA) is a line of credit that survives market declines.
The whole calculation-heavy unit on one sheet: the regulatory layers, the long and short math, the trigger prices, and the SMA rules the exam loves.
The Core: Three Layers and Two Formulas
- Federal (Federal Reserve, Regulation T): initial margin, currently 50% for nonexempt securities.
- Self-regulatory (FINRA): maintenance margin, 25% long / 30% short.
- Firm ("house"): can require more than the minimum, never less.
- Long equity = LMV - DR (Long Market Value minus Debit Balance). DR is fixed at the loan amount; only equity moves with the market.
- Short equity = CR - SMV (Credit Balance minus Short Market Value). CR is locked at the short sale (proceeds plus the 50% deposit = 150% of SMV).
The One-Liners That Win Points
- Minimum to open = $2,000. If the purchase is under $2,000, deposit the full price (no borrowing).
- The margin agreement has three parts: credit agreement and hypothecation agreement are mandatory; the loan consent form is the ONLY optional part.
- Restricted (equity below 50% of value) is NOT a maintenance call (equity below 25% long / 30% of value short). Restricted limits new purchases; it does not force a deposit.
- Long trigger price = DR / 0.75. Short trigger price = CR / 1.30. These are the two most tested formulas.
- Buying power (and short selling power) = 2 x SMA. Each dollar of SMA supports a $2 purchase at the 50% Reg T rate.
- SMA survives market declines (high-water mark); it drops only on customer actions (purchases, withdrawals, securities removal).
- Exempt securities (Treasuries, agencies, municipals) use lower good-faith margin, not the 50% Reg T rate; that is different from non-marginable (IPOs and mutual funds for the first 30 days cannot be bought on margin at all).
Numbers to Lock In
| Item | Value |
|---|---|
| Regulation T initial margin | 50% of market value |
| Minimum equity to open (long or short) | $2,000 |
| Maintenance margin, long | 25% of Long Market Value |
| Maintenance margin, short | 30% of Short Market Value |
| Long maintenance trigger price | Debit Balance / 0.75 |
| Short maintenance trigger price | Credit Balance / 1.30 |
| Short account credit balance at inception | 150% of Short Market Value |
| Rehypothecation limit | 140% of the debit balance |
| Buying power / selling power | 2 x SMA (2 x excess equity) |
| Non-marginable holding period (IPOs, mutual funds) | 30 days |
| Reg T call payment deadline | settlement date plus two business days (T+3) under T+1 |
| Pattern day trader minimum equity | $25,000 |
| Pattern day trader definition | 4+ day trades in 5 business days AND more than 6% of total trades |
| Day-trading buying power | 4x maintenance margin excess |
| Portfolio margin minimum equity | $100,000 (up to $500,000 when some trades execute away) |
Top Gotchas
- The debit balance is fixed. It changes only through customer action or accrued interest, never from market moves; only equity fluctuates.
- The 140% rehypothecation limit is on the DEBIT BALANCE, not market value. Multiply the debit balance by 1.4.
- SMA is not cash. It is a bookkeeping line of credit; the exam may disguise it as a cash balance.
- A firm can liquidate on a maintenance call without notice or time. The customer is not entitled to a time extension.
- A firm cannot liquidate another customer's account to meet one customer's margin call.
- In a restricted account, 50% of sale proceeds are retained to reduce the debit balance; in an unrestricted account, 100% goes to SMA.
- Interest increases the debit balance, which decreases equity. Even with no market movement, interest alone can push an account toward a maintenance call, so margin suits short-term positions.
- The broker call rate is NOT the customer's rate; the customer pays the call rate plus a firm-set spread, disclosed in the credit agreement.
- Pattern day trader requires BOTH conditions. Exactly 4 day trades with a high total trade count (day trades under 6%) is NOT a pattern day trader.
One-Breath Recap
Regulation T sets initial margin at fifty percent, FINRA maintenance sits at twenty-five percent long and thirty percent short, and the account floor is two thousand dollars. Long equity is market value minus the debit balance and short equity is the credit balance minus market value, with trigger prices at debit over point seven five and credit over one point three. Lock in that the Special Memorandum Account is a line of credit that never shrinks when the market falls, and the calculations answer themselves.
Need more than the recap? This is a condensed summary. If it is not enough, read the full Margin Accounts unit for the complete lesson.