Margin equity
Also known as: equity in a margin account
Margin equity is the portion of a margin account the investor actually owns — the account's market value minus the amount borrowed from the broker-dealer. It rises and falls with the value of the securities in the account.
Margin equity is the investor's ownership stake in a margin account. In a long margin account, equity equals the long market value of the securities minus the debit balance (the loan from the broker-dealer): equity = LMV − DR. In a short margin account, equity equals the credit balance minus the short market value of the borrowed shares: equity = CR − SMV.
A quick example: an investor buys $20,000 of stock in a margin account by depositing $10,000 and borrowing $10,000, satisfying Regulation T's 50% initial requirement. If the stock rises to $30,000, equity grows to $20,000 ($30,000 − $10,000 debit). If the stock instead falls to $14,000, equity shrinks to $4,000 — the loan balance never changes, so every dollar of market movement flows straight into or out of equity.
Equity is the number regulators and firms watch. FINRA requires minimum maintenance equity of 25% of market value in long accounts and 30% in short accounts; if equity falls below the threshold, the firm issues a maintenance call demanding more cash or securities. Equity above the Reg T requirement generates excess equity, which is tracked in the special memorandum account (SMA) and can support withdrawals or additional purchases.
Margin equity calculations are a math staple of the SIE, Series 7, and Series 65 exams. Practice moving the market value up and down and recomputing equity, spotting a restricted account, and determining when a maintenance call is triggered.
Key takeaways
- Long account equity = long market value − debit balance; short account equity = credit balance − short market value.
- The loan (debit balance) stays fixed, so changes in market value hit equity dollar for dollar.
- Regulation T sets a 50% initial requirement; FINRA maintenance minimums are 25% for long accounts and 30% for short accounts.
- Equity above the Reg T requirement is excess equity, credited to the special memorandum account (SMA).
- Falling below maintenance equity triggers a maintenance call for additional cash or securities.