What is Margin?
In short
Trading with money borrowed from the broker. The loan usually carries interest, and losses can exceed your own capital.
Also known as: margin account, margin call
Margin means buying stocks with money borrowed from your broker. In a margin account you can open positions larger than your own funds; the broker charges interest on the loan and holds the shares you buy as collateral.
Key rules (US)
- Initial margin: under Reg T at least 50% of a purchase must be your own money.
- Maintenance margin: FINRA's minimum is equity of at least 25% of the position value; many brokers require more.
- If equity falls below that, you get a margin call: deposit cash or reduce the position. If you don't, the broker sells for you, often at the worst moment.
Why it's risky
Margin creates leverage: gains and losses are both magnified relative to your capital. If the price drops sharply or gaps, losses can exceed your own money and leave you owing the broker. Interest also accrues daily and drags on positions held for a long time.
From a Shariah standpoint, interest-bearing debt is riba, so halal investors generally avoid margin.
Example
Illustrative: you have $10,000 of your own and buy $20,000 of stock on margin — a $10,000 loan.
- The price falls 20%: the position is $16,000 and your equity is $16,000 − $10,000 = $6,000. That's −40% on your own money.
- When is the margin call? When equity hits 25% of the position: (V − $10,000) ÷ V = 25% → V ≈ $13,333. That is a price drop of about 33.3%.
- At 8% annual interest: $10,000 × 8% = $800 a year, even if the trade goes nowhere.
Without margin, the same 20% drop would be a −20% loss.
Mistakes and tips
Calculate your margin call price in advance — it may be much closer than you think.
Include the loan interest in your trading plan: it accrues every day.
See how hard losses are to recover in the drawdown calculator: after −40% you need +66.7%.
Frequently asked questions
- What should I do if I get a margin call?
- Deposit cash or sell part of the position. If you don't by the deadline, the broker sells shares itself, without asking.
- Can I lose more than I invested with margin?
- Yes. With a sharp drop or a gap, losses can exceed your equity and leave you owing the broker.
- Is a margin account halal?
- Interest-bearing debt is riba in Shariah, so most scholars do not permit using interest-based margin.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
- Halal investing basicsHow a stock passes a Shariah screen: business activity, the three AAOIFI ratios with numbers, doubtful cases and what is off-limits.Open lesson · 12 min
- Risk and position sizeHow much you're willing to lose on one trade, how many shares that means, and which account-level limits you need — with formulas and worked examples.Open lesson · 11 min
- Demo trading: practice without money, but seriouslyMaking demo realistic, a 30-day plan, which numbers to track and when to move to real money.Open lesson · 11 min
Try the theory without risk
Open a free account: demo trading with a $10,000 virtual balance, a trading journal, calculators and a step-by-step course.
Read more on this
- Short interest: what short positions tell you (and is shorting halal?)What short interest and days to cover mean, how to read FINRA data, what it doesn't tell you — and what scholars say about short selling.
- Trading journal: what to record and how to analyse the resultsA journal isn't a notebook — it shows which of your decisions make money and which lose it. What to record, which numbers to watch, and CSV import.
- Why you should trade on a demo account firstA demo account is a free practice ground: test your plan, find mistakes cheaply and build statistics. How to use it and where it differs from the real market.