What it means
A margin account lets an investor borrow from a broker to buy more securities than their cash alone would allow. The securities in the account act as the safety net for that loan, so the broker only accepts holdings it can sell quickly and at a predictable price.
Anything the broker will not accept falls into the non-marginable bucket. Typical non-marginable holdings include very low-priced "penny" shares, many shares traded outside the major exchanges, and some newly listed shares during an initial waiting period.
Brokers also restrict highly volatile or illiquid names (those that are hard to sell without moving the price). Each broker keeps its own list, and it can change without much notice.
For a business owner or a finance team, the practical effect is on buying power. Non-marginable securities count for nothing, or sometimes close to nothing, when the broker calculates how much you can borrow.
If a portfolio holds a large position in a non-marginable stock, that position will not support any loan, however much it is worth on paper. The distinction also matters when a margin loan is already running.
A broker can ask for more cash if the value of marginable collateral falls, and non-marginable holdings cannot be used to meet that request. That can force an investor to sell other, better holdings at a bad moment.
A common variant is a security that is marginable for the initial purchase but later becomes restricted, for example after a trading halt or a sharp price collapse. Always check the broker's current eligibility list rather than assuming that what was marginable last month still is.
If you use margin as part of a funding plan, build in a buffer. Treat the borrowing capacity from marginable holdings as a ceiling and not a target, because both the eligibility list and the market value of the collateral can move against you at the same time.
In practice
Real-world examples.
Example
A founder with $150,000 of shares in a newly listed company expects to borrow against them for a working capital top-up. The broker classifies the stock as non-marginable for its first weeks of trading, so the founder must use other collateral or wait. The finance adviser suggests pledging an existing marketable portfolio instead, rather than selling shares at a poor moment.
Example
A retail trader buys a $5,000 position in a low-priced stock quoted outside the main exchanges. The broker requires payment in full in cash, because the stock is not on its marginable list and cannot be bought with a loan. The trader therefore needs $5,000 of settled cash in the account before the order can go through.
Example
A family office runs a margin facility against a diversified portfolio. When one holding is suspended from trading, the broker reclassifies it as non-marginable overnight and the available credit line drops by tens of thousands of dollars. The office has to repay part of the loan within days to stay inside its limit.
Formula
Calculation
Borrowing capacity = (Marginable securities value x Loan value percentage) + 0 for non-marginable holdings
Take an account holding $80,000 of large-company shares that the broker treats as marginable and $20,000 of a thinly traded small-cap share that is non-marginable. Assume the broker lends up to 50% against marginable securities. Borrowing capacity = ($80,000 x 0.50) + ($20,000 x 0) = $40,000 + $0 = $40,000. Although the account is worth $100,000 in total, only $80,000 counts towards borrowing, so capacity is $40,000 and not the $50,000 the investor might have expected.Case study
Seen in the real world.
Harlow Ridge Capital is a fictional boutique investment firm used here to illustrate the idea. Its partners held a $200,000 position in a small biotech share that had been marginable for two years. They planned to borrow $60,000 against the whole portfolio to fund an office fit-out.
When the biotech company announced disappointing trial results, trading became erratic and the broker moved the share to its non-marginable list. The partners discovered that their usable collateral had fallen by $200,000, and the planned loan was no longer available. They funded the fit-out from retained cash instead, which delayed the move by two months, and now check the broker's list before relying on any single holding as collateral.
The lesson the partners took away is that a portfolio's headline value and its borrowing value are two different numbers. They now keep a one-page schedule that lists each holding, whether it is marginable, and the loan percentage the broker applies, and they refresh it every month.
Watch out
Common mistakes.
- Assuming every listed share can be used as collateral. Brokers set their own eligibility rules, and small, volatile or newly issued shares are often excluded.
- Counting the full portfolio value when working out borrowing power. Only the marginable portion counts, and the loan percentage is then applied to that amount.
- Believing eligibility never changes. A broker can move a security onto the non-marginable list at short notice, which can trigger a request for extra cash.
Questions
People also ask.
Can non-marginable securities still be bought?
Yes. You simply pay for them in full from your own cash and they do not add to your borrowing capacity.
Do non-marginable securities count towards account equity?
They are generally valued at market price in account equity, but they provide little or no loan value, so they do not help meet a margin call.
Who decides which securities are non-marginable?
Mainly the broker, within the minimum standards set by regulators and the exchanges. Brokers can apply stricter rules than the minimum.
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%