Margin Loan Availability: What It Means and How It Works
Margin loan availability is the amount in a margin account that a brokerage customer can either borrow against to buy more securities or withdraw. A margin account uses the customer’s eligible securities as collateral for loans from the brokerage.
How it works
- The available amount depends on the current market value of the marginable securities in the account. As those securities rise or fall in value, the amount available to borrow or withdraw changes correspondingly.
- Margin loan availability can be presented in two ways:
- For existing margin accounts, the dollar amount currently available for new margin purchases or withdrawal.
- For new accounts, the percentage of the account balance that is allowed for future margin purchases.
- It may not reflect trades that are in the period between trade date and settlement date, so available funds can differ from what appears if trades haven’t settled.
- Margin debt includes securities purchased on margin and other borrowed funds secured by account positions.
Maintenance margin and margin calls
Brokerage firms and regulators require a minimum equity level in margin accounts:
* Firms impose a maintenance requirement, typically expressed as a percentage of the market value of securities purchased on margin.
* If the account’s equity (the difference between market value and margin debt) falls below the maintenance requirement, the broker may issue a margin call.
* A margin call requires the investor to add cash or liquidate positions—often within a short timeframe—to restore the required equity level. Brokers and regulators (e.g., the Federal Reserve, FINRA, exchanges) set rules; individual brokerages may enforce stricter limits.
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Example
If an investor holds securities used as collateral and those securities decline in value, the collateral backing the margin loan falls as well. That reduces the margin loan availability and can trigger a margin call if equity drops below the maintenance threshold.
Practical considerations
- Monitor margin balances and market movements closely; availability can change daily.
- Understand your brokerage’s specific margin rules, maintenance requirements, and notification procedures.
- Account for unsettled trades when planning purchases or withdrawals.
- Using margin amplifies gains and losses; be prepared for the possibility of forced liquidation if a margin call isn’t met.
Key takeaways
- Margin loan availability is the borrowable or withdrawable amount in a margin account, determined by the value of the account’s marginable securities.
- Availability fluctuates with market prices and can be reduced by unsettled trades.
- Falling below the maintenance margin can result in a margin call and forced selling of securities.