Borrow half the purchase price and a 10 percent fall in the stock removes 20 percent of the equity, because the loan does not shrink with the position. Regulation T of the Federal Reserve Board sets that half: a broker can lend up to 50 percent of the purchase price of margin securities. The ratio between the position and the equity is the whole of the effect, and raising the ratio raises both directions equally.

The arithmetic, at $50 a share

The SEC's margin bulletin runs the base case. Buy a stock at $50 in a cash account and a rise to $75 is a $25 gain on $50, a 50 percent return. Buy the same share on margin with $25 in cash and $25 borrowed, and the same $25 gain is 100 percent of the money actually invested, before the interest owed on the loan.

Reverse the move. The stock falls 10 percent, from $50 to $45. The loan is still $25, so the equity is $45 minus $25, or $20, down from $25. A 10 percent fall in the asset is a 20 percent fall in the equity. Push it further and the bulletin's own case appears: at $15 a share, a fully paid holder has lost 70 percent, while the margin holder has lost the entire $25 and owes the broker an additional $10 plus interest.

The recovery arithmetic runs off the smaller base. Equity of $20 needs a 25 percent gain to return to $25, which the stock delivers only by climbing from $45 back to $50 — an 11.1 percent rise in the share price. The multiplier that made the loss bigger makes the required move smaller, and the guide on why a 20 percent loss needs a 25 percent recovery covers the base-change that produces both.

Where the floor sits

Leverage has a hard stop written into a rule. FINRA Rule 4210(c) requires maintenance margin of 25 percent of the current market value of all margin securities held long in the account, with short positions carried at the greater of $5.00 per share or 30 percent of current market value for stock priced at $5 or more. Brokers set higher house levels; the SEC's bulletin puts the common range at 30 to 40 percent, and sometimes higher.

Apply the rule to the single share. Equity is the price minus the $25 loan, and equity equal to 25 percent of the price solves at $33.33: $33.33 minus $25 is $8.33, and $8.33 divided by $33.33 is 25 percent. The share can fall 33.3 percent from $50 before the regulatory floor is reached. At a 40 percent house level the same equation gives $41.67, a fall of just 16.7 percent. The same position has two different breaking points depending on whose number applies, which is why the house figure matters more than the rule's.

One date belongs beside those figures. The 25 percent maintenance minimum is unchanged, but FINRA's day-trading margin provisions are being replaced by intraday margin standards that became effective 4 June 2026, with a transition period running to 20 October 2027. A margin account trading the same session it opens a position is the case affected, and the guide on the day-trading margin transition covers which framework a given broker is running.

Leverage without a loan

Not every leveraged position borrows. A futures deposit is a performance bond, and Schwab's futures page puts initial margin at 3 to 12 percent of the underlying contract value against 50 percent or more for an equity position. A $112,500 E-mini contract opened on a $3,375 deposit moves the account by the full contract's dollar swing: 1 percent on the index is $1,125, or 33.3 percent of the deposit. No money was lent, and the ratio of exposure to cash is four to sixteen times what Regulation T allows on stock. That structure is set out in the guide on a deposit versus the size of the exposure.

Funds do it a third way. A daily-objective fund applies its multiple inside the fund, so the account cannot go negative, but the multiple resets every session; a daily-objective fund shows what that does over more than one day.

Whatever the wrapper, one division answers the question: position value divided by equity. At $50 fully paid the ratio is 1. At $25 equity on a $50 share it is 2, and every percentage move in the asset arrives doubled. The account type that permits the loan in the first place is described in the guide on cash and margin accounts.

Source references

Primary sources used for this guide. Follow the links for the original scope, definitions and conditions.