What Is a House Maintenance Requirement?
Let me explain what a house maintenance requirement really is—it's the minimum level of equity you need to keep in your margin account, as set by your brokerage firm. These levels draw from the standards in Regulation T from the Federal Reserve.
Sure, Regulation T lays out the legal minimums, but your broker can set their own 'house' requirements, as long as they're stricter than what's in Regulation T. That's how it works—you're dealing with their rules on top of the basics.
Key Takeaways
House maintenance requirements are the equity standards your broker picks for margin accounts. They have to be at least 25% as per Regulation T, but you'll often see them between 30% and 50%. Brokers might ease up a bit for big or savvy clients, but never below that 25% floor. And remember, these can change based on what you're investing in—riskier, less liquid stuff means you need more equity to cover potential issues.
How House Maintenance Requirements Work
These requirements exist to make sure you, as an investor using margin for leveraged trades, don't end up unable to pay back your loans. They're there to cut down credit risk for the broker, and by extension, lower the overall systemic risk from a bunch of margin defaults.
Typically, house requirements sit between 30% and 50%. Stocks are common in margin accounts, but you can also buy mutual funds, Treasuries, corporate bonds, and options on margin, each with their own rules.
Per Regulation T, you need at least 25% equity on your investments. Drop below that, and your broker hits you with a margin call. You'll have to add more collateral fast, or they'll sell off your positions to cover the loan. Any leftover debt? That's on you to pay separately.
Bull vs. Bear Markets: Why Maintenance Requirements Are Necessary
In bull markets, you might think these requirements are too tight—prices are up, so why not leverage hard to boost your returns? But when the market flips to bear territory or hits a shock like the 2007-2008 crisis, the risks show up fast.
Falling portfolio values plus urgent margin calls can put you in a tough spot. You could lose all your prior gains and even have to sell personal assets to cover loans. That's why these requirements make sense—they protect against that kind of fallout.
If your account equity dips below the maintenance level, expect a margin call from your broker.
What Impacts House Maintenance Requirements
Your broker's house requirement is usually higher than the 25% from Regulation T. They tailor it based on who you are as a borrower—size, credit, experience. A newbie might face 40%, while a pro gets 30%.
The investment type matters too. Volatile small stocks? Higher requirements. Stable S&P 500 giants? Easier terms.
Common Questions
What's the minimum maintenance requirement? Legally, it's 25% from Regulation T, but brokers often demand more.
What does a 30% requirement mean? It means you need at least 30% of your securities' total market value in equity. For $20,000 in securities, that's $6,000 minimum.
What's a special maintenance requirement? Some securities get higher ones if they're riskier, like volatile or illiquid investments.
The Bottom Line
A house maintenance requirement is the equity floor you must maintain in your margin account after buying on margin. Regulation T says 25% of the securities' value, but brokers push it higher. Pay attention—if you drop below and ignore the call, your broker can liquidate to recover funds. Stay on top of this to avoid trouble.
Other articles for you
A deposit slip is a paper form used for recording bank deposits, though it's being replaced by digital alternatives.
The neckline in technical analysis is a key support or resistance level in head and shoulders patterns that signals potential price reversals when broken.
The K-Ratio is a metric that evaluates the consistency of an equity's returns over time using data from a value-added monthly index.
A leveraged employee stock ownership plan (LESOP) allows a company to fund an ESOP using borrowed money, repaid through annual contributions, providing employees with ownership without upfront cash.
A moratorium is a temporary suspension of activities or laws to manage crises or financial hardships.
A Global Depositary Receipt (GDR) is a financial instrument that represents shares in a foreign company, allowing international access to capital and investments.
The theory of price explains how prices of goods and services are set by the interaction of supply and demand in a market economy.
Trailing 12 months (TTM) is a financial metric that assesses a company's performance over the past 12 consecutive months for a more current view than annual reports.
This text explains the Exponential Moving Average (EMA) as a technical indicator that prioritizes recent data for better trend tracking in trading.
Demographic dividend is the economic growth from a population's changing age structure due to declining fertility and mortality rates.