July 01, 2025
4 mins read
Trading with borrowed money from a broker, also known as margin trading, allows you to purchase more than what your own funds permit. This leverage can amplify both profits and losses. To safeguard both trader and broker, a maintenance margin is set. It represents the minimum amount of equity you must maintain in your account.
Think of it as a protective safety net, ensuring you do not lose beyond a certain level when market prices move against your trade. If your account balance falls below this requirement, your broker will intervene, often by issuing a margin call.
Suppose you buy shares worth ₹1,00,000 by using ₹50,000 of your own funds and borrowing the rest from your broker. This doubles your buying power but also doubles your risk.
To protect against excessive losses, brokers set a maintenance margin. If the margin is 30%, you must always maintain at least ₹30,000 in your account. When your balance falls below this, your broker issues a margin call.
A margin call requires you to add more funds or sell some holdings. If you fail to respond promptly, your broker has the right to sell your securities.
Imagine your ₹1,00,000 investment falls in value to ₹85,000. Since half the funds were borrowed, your equity also drops significantly. With the new value, you might no longer meet the 30% maintenance margin requirement set by your broker.
When this happens, your broker alerts you with a margin call, asking you to deposit additional funds or sell some holdings to restore balance. If you fail to act, your broker has the authority to sell part or all of your shares to recover the borrowed amount, protecting themselves from losses while limiting your control over the investment.
Additional Read: What is Margin of Safety
You can borrow money to trade on a margin account, but the upkeep margin makes sure you don't lose too much. It's like a safety net for your money.
Unlike the starting deposit you make to open a trade, maintenance margin only comes into play later—when your balance falls below the safe level set by your broker.
Your broker’s job is to watch your account. If the market moves against you, they’ll issue a margin call to protect both your funds and theirs.
Stock exchanges and government agencies decide on this rule, but brokers can make them harsher if they want to. To avoid overexertion, this is a very important thing to do.
Thing | Margin Account | Maintenance Margin |
What it is | A trading account where you borrow money from your broker to buy more shares or other investments | The smallest amount of your own money you must keep in your account after borrowing |
Why it’s used | Lets you buy more than you could with just your money | Stops you from losing too much and protects both you and your broker |
When it’s needed | At the start, before you borrow | Later, only if your account’s value drops too much |
When it kicks in | When you first open a trade with borrowed money | When your account value falls below the broker’s safe level |
Where it’s used | Stocks, futures, options, and some bonds | When trading with borrowed money, especially in risky markets |
What the broker does | Lends you money and sets rules | Checks your account and warns you if you need to add money |
Risk level | You can make bigger profits but also bigger losses | Helps keep your losses from getting out of control |
Who makes the rules | Market regulators like SEBI and stock exchanges | Stock exchanges and brokers, often with their own extra rules |
Effect on you | Can make you money faster, but also lose it faster | Keeps you from owing more than you can handle |
Additional Read: What is Margin Trading Facility
The maintenance margin is more than just a regulatory concept—it's a fundamental safeguard in leveraged trading. It helps control risk and ensures that accounts remain adequately funded during periods of market volatility.
When trading instruments such as options or certain bonds, staying informed about the maintenance margin can help avoid sudden margin calls and unexpected liquidations.
Understanding the dynamics between margin accounts and maintenance margin requirements enables traders and investors to operate within safe financial limits, aligning with broader regulatory frameworks.
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The maintenance margin is the minimum amount of equity that must be maintained in a margin account after initiating a trade. If the account value falls below this threshold, the investor must add funds or sell assets to meet the requirement.
It is typically calculated as a percentage of the total market value of securities held in the margin account. For example, if the maintenance margin is 25%, the investor must retain at least ₹25,000 in equity for a ₹1,00,000 position.
The initial margin is the upfront amount required to open a margin position, while the maintenance margin is the ongoing minimum equity required to keep the position open.
It helps protect investors from over-leveraging and large losses during market downturns. It also ensures that brokerage firms are not exposed to undue financial risk from customer accounts.
If the account falls below the maintenance margin, a margin call is issued. Investors must either deposit additional funds or sell part of their holdings to bring the account back to the required level.
When you trade futures or options, you can’t let your account balance fall too low. If it does, your broker steps in and asks you to add money or reduce some trades.
The dollar amount required for the maintenance margin will be affected by market volatility, liquidity of the security, time remaining to expiration of the contract(s), and the broker’s risk policy, as well as how the entire portfolio is set up.
The broking firm will set its own minimum requirement for maintenance margin but often will require a greater maintenance margin than the minimum imposed by regulatory agencies; such requirements can vary between broking firms and change quickly when conditions are volatile.
When the account balance falls below the maintenance requirement, then your broking firm will contact you with a margin call; this means you are required to either deposit additional funds to bring the account back up to the original maintenance margin, or you will have to liquidate assets.
Yes, that happens. When markets get jumpy or volatile, brokers or exchanges often raise margin requirements so risks don’t spiral out of control.
A margin call is simply your broker letting you know that your account balance has dropped too much. At that point, you either add some money or trim your positions to stay within limits.
To avoid this, traders usually keep a little extra money in their account, don’t go too heavy on trades, and exit losing positions early rather than letting them get worse.
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