Leverage and margin explained: how your losses can exceed your deposit

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Leverage lets you control a larger position than your own cash would allow. It is the reason some trades on forums show enormous percentage returns, and also the reason some accounts are wiped out in a single day. This guide explains how margin works and how losses can grow beyond what you put in. It is educational and is not financial advice.

The basic idea

With leverage, you put up part of the value of a position and borrow or are credited the rest. If you control 10,000 pounds' worth of shares with 2,000 pounds of your own money, a 10 per cent rise gives you a 50 per cent gain on your money. A 10 per cent fall gives you a 50 per cent loss. A 20 per cent fall wipes out your stake entirely.

Margin accounts

A margin account lets you borrow from your broker using the cash and investments in the account as security.

Initial margin is how much of a purchase you must fund yourself. In the US, the Federal Reserve's Regulation T has long set this at 50 per cent for most shares, and brokers can ask for more.
Maintenance margin is the minimum equity you must keep as prices move. FINRA sets a floor of 25 per cent for most long stock positions, and many brokers set higher house requirements.
Interest is charged on the borrowed amount, often daily, and eats into returns.

US day trading rules have also been changing. The long-standing pattern day trader rule, with its minimum account balance, was approved for removal in 2026 and replaced with intraday margin standards that brokers are phasing in. Check your own broker's current rules rather than relying on older forum posts.

Margin calls and forced selling

If your equity falls below the maintenance level, the broker issues a margin call asking you to add cash or securities. Important points:

The broker may not wait for you. Many agreements allow positions to be sold without notice, at whatever price the market offers.
You do not choose what is sold. The broker may close the positions it prefers.
Gaps happen. If a share opens far below the previous close after bad news, there is no chance to sell in between.

How you can lose more than your deposit

In a margin account, if positions fall far enough or fast enough, selling them may not raise enough to repay the loan. The shortfall is a debt you owe the broker. Short selling and selling uncovered options on margin carry the same risk, often more severely. Some products work differently. In the UK, FCA rules for retail contracts for difference (CFDs) cap leverage at levels set by the type of asset, require firms to close positions when funds fall to half the required margin, and give retail clients negative balance protection, so they cannot lose more than the money in their trading account. That protection applies to those regulated retail products, not to every leveraged account, and it does not stop you losing everything you deposited. Firms selling CFDs must also show warnings about the share of their retail accounts that lose money.

Leveraged funds and other hidden leverage

Leveraged exchange-traded products aim for a multiple of an index's daily move. Because they reset daily, their returns over weeks or months can differ a great deal from the multiple you might expect, especially in choppy markets. Read the fund documents before assuming how one behaves.

Practical rules if you are learning

Understand your broker's margin agreement before borrowing a penny.
Work out in advance the price at which you would face a margin call.
Keep leverage low or avoid it entirely while you are learning.
Never borrow money you cannot afford to repay.
Check your national regulator, such as the FCA, SEC or FINRA, for guidance, and that any firm you use is authorised.

This article is not a recommendation to use leverage or to trade any product. Consider independent regulated advice if you are unsure. Has a margin call ever taught you something the hard way? Share your experience in the comments so others can learn from it.