What it means
When an investor borrows from a broker to buy securities, the broker needs protection if prices fall. The investor therefore must keep some of their own money in the account at all times, known as maintenance margin.
Regulators set a baseline, and brokers are allowed to be stricter. The broker's stricter level is the house maintenance requirement.
It may differ by security, with riskier or thinly traded shares carrying higher percentages than large, stable companies. It may also be higher for concentrated positions, where one stock makes up a large share of the account.
The requirement is stated in the account agreement and on the broker's website, and it can be changed at short notice. In turbulent markets brokers often tighten requirements to protect themselves, which can trigger calls on accounts that were fine the day before.
Investors who use leverage (borrowed money) should check the current rules regularly. The requirement determines the price at which a call is triggered.
The higher the percentage, the sooner a fall in prices will cut equity below the line. Knowing the trigger price lets an investor plan, either by keeping a buffer or by setting a level at which to reduce the loan.
The percentage is not the same as the loan-to-value ratio, although the two are linked. A 30% equity requirement means the loan can be at most 70% of the market value, so the two figures always add up to 100% at the trigger point.
Mixing them up is a common source of mistakes. Companies and executives encounter the concept when securities are pledged as collateral for loans or when employees borrow against their shares.
The principle is the same: lenders protect themselves with a cushion, and the borrower must keep that cushion topped up.
In practice
Real-world examples.
Example
A broker sets a 30% house requirement for most large-company shares but 50% for a volatile biotechnology stock. An investor holding both must keep more equity against the biotechnology position.
Example
A private banker lends a client $2,000,000 against a $5,000,000 portfolio and applies a 35% house requirement. She tells the client that the portfolio must not fall below $3,076,923 without a top-up, since $2,000,000 / 0.65 is about $3,076,923.
Example
A small business owner uses margin to buy shares with spare cash and reads the account agreement to learn the house requirement before borrowing. He decides to borrow only half of what the broker allows. That choice leaves him a comfortable cushion if the market has a bad month.
Formula
Calculation
Equity percentage = (Market value - Loan) / Market value x 100
Trigger value = Loan / (1 - Requirement percentage)
Suppose an investor holds $50,000 of shares bought with $29,000 of their own money and a $21,000 loan, and the broker's house requirement is 30%. The trigger value is $21,000 / (1 - 0.30) = $21,000 / 0.70 = $30,000. The shares can fall from $50,000 to $30,000, a drop of 40%, before a call is triggered. With a regulatory minimum of 25%, the trigger would be $21,000 / 0.75 = $28,000, so the stricter house rule leads to a call $2,000 sooner.Case study
Seen in the real world.
Oakridge Securities is an illustrative, fictional brokerage that applied a flat 30% house requirement across its clients. During a sharp market fall, it saw many accounts holding concentrated positions in a single sector come close to the line at the same time.
The firm raised the requirement to 40% for that sector. Clients with plenty of equity were unaffected, but several with thin margins received calls the next morning.
In this illustrative story one client, Elena, held $60,000 of shares with a $30,000 loan, so her equity was 50%. After the change, her trigger value rose from $30,000 / 0.70 = $42,857 to $30,000 / 0.60 = $50,000. She reduced her loan to $20,000, which dropped her trigger to $33,333. She also set a reminder to read the broker's notices each week, since changes were posted on its website rather than sent by email. The firm's risk manager noted that the clients who coped best were those who kept cash on the side. The lesson is that requirements can move and leave less margin for error, so a buffer is cheaper than a forced sale.
Watch out
Common mistakes.
- Believing the regulatory minimum is the level that applies to your account.
- Forgetting that requirements can change for specific securities without much warning.
- Calculating the trigger on the original purchase price rather than on current market value and the current loan.
Questions
People also ask.
Why do brokers set higher requirements than regulators?
They want a larger cushion against price falls and against customers who cannot repay.
Where can I find my account's requirement?
It is in the margin agreement and usually on the broker's website or account screens.
How can I reduce the chance of a call?
Borrow less, hold more cash or diversify, and keep equity comfortably above the requirement.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related