Is a maintenance ratio of 130% a life-or-death line? Understanding the entire account maintenance ratio is essential to avoid losing everything.

If you’ve ever used margin to buy stocks, you should have received a “Margin Call” from your broker. But do you really understand why you’re being margin called? The key lies in the Account Maintenance Ratio.

The Essence of Margin Trading: Borrowing Money to Buy Stocks, Rules Set by Brokers

Margin buying is essentially borrowing money from your broker. If you have 1 million NT dollars in cash and want to buy 2.5 million NT dollars worth of stocks, you borrow the remaining 1.5 million NT dollars from the broker. This transaction looks very profitable — using 40% of your capital to leverage 100% returns. But the problem is, the broker is also keeping track of the accounts.

Their biggest concern isn’t you making money, but you losing so much that you can’t even repay the principal. So, they set a game rule: the Account Maintenance Ratio.

How to Calculate the Account Maintenance Ratio? One Formula to Understand

Account Maintenance Ratio = Stock Market Value ÷ Margin Loan

Here’s a real-world example: Xiao Mei uses NT$2,500 to buy one lot of Largan Precision, with a market value of NT$2,500,000. She pays NT$1,000,000 in cash and borrows NT$1,500,000. The calculation is 250 ÷ 150 = 167%.

The higher this number, the safer; the lower, the riskier. When stocks rise, the maintenance ratio increases; when stocks fall, it drops instantly.

If Stock Price Drops 5%, the Maintenance Ratio Might Trigger a Margin Call

The daily limit for stock price movement in Taiwan stocks is 10%. Suppose Largan drops to the limit down to NT$2,250 the next day. How does Xiao Mei’s account maintenance ratio look?

NT$2,500,000 → NT$2,250,000 (market value shrinks)
2250 ÷ 1500 = 150%

Within one day, the maintenance ratio drops from 167% to 150%. If the decline continues and the account maintenance ratio falls below 130%, the broker will issue a “Margin Call” — requiring the investor to restore the ratio to above 130% within 2 days.

Three Possible Outcomes After a Margin Call

Scenario 1: Investor Ignores the Margin Call

If no action is taken within 2 days, on the third day, the broker will directly sell your margin stocks at market price. This is commonly called a “Forced Liquidation” — forced sale, often at the worst possible price.

Scenario 2: Emergency Top-up, but Only to 130%~166%

Investors can choose to add margin (equivalent to repaying part of the loan), which reduces the margin loan and naturally increases the maintenance ratio. But this is only a temporary relief; the margin call still remains in effect. If stock prices fall again and the ratio drops below 130%, you must top up immediately that afternoon, or you’ll be forced to sell the next day.

Scenario 3: Return to Over 166% in One Go

Whether through stock rebound or large margin top-up, as long as the account maintenance ratio returns to above 166%, the broker will revoke the margin call. The game is truly reset to the starting point.

US Stock Margin Trading Is More Aggressive Than Taiwan Stocks: Smaller Leverage, Greater Risk

In Taiwan, margin leverage is 2.5x — you can buy NT$10,000 worth of stocks with NT$4,000. But in the US, the leverage is only 2x, requiring NT$5,000 to buy US$10,000 worth of stocks.

More dangerously, US stock margin rules use Maintenance Margin, with a completely different calculation:

Maintenance Margin = (Stock Market Value - Margin Loan) ÷ Stock Market Value

The NYSE requires a minimum of 25%, but many brokers enforce stricter rules. Also, US stocks have no daily price limit, so in the face of bad news, stocks can plunge 50% pre-market. Many investors not only lose their principal but also end up owing money to the broker.

CFD Trading: Higher Leverage, But Higher Barriers

If you want to chase big gains with small capital, consider stock CFDs (Contracts for Difference). CFDs can leverage up to 10x, with an initial margin of 10% of the underlying price, and a maintenance margin set at 5%.

For example, buying a stock worth US$200 with 2x leverage, if the stock drops to US$135 (a 33% decline), it will be forcibly liquidated. But with CFDs, it might only be triggered around US$106. At first glance, CFDs seem more resistant to drops, but 10x leverage means a 20% correction can wipe out your entire account.

Regarding interest, US stock margin interest rates are generally above 9.5% (especially for small accounts), while platforms like Mitrade offer CFD interest around 8% annualized, which is relatively cheaper. But regardless of the method, the longer you hold, the more the interest costs accumulate.

How to Avoid Margin Calls and Forced Liquidation? The Key Is Risk Awareness

1. Monitor the Account Maintenance Ratio: Check your account status at the end of each trading day; don’t wait until you’re margin called to react.
2. Keep Sufficient Cash Reserves: Don’t put all your funds into margin buying; keep 20%~30% cash for emergencies.
3. Diversify Industry Holdings: Avoid concentration in a single industry; this makes your account more resilient to drops.
4. Set Psychological Stop-Losses: Black swan events can happen anytime—wars, pandemics, rate hikes—that can instantly wipe out your account.

Summary

Margin buying can indeed amplify gains with less capital, but it also doubles the risk. An account maintenance ratio of 130% is a critical survival line, and 166% is a safety buffer. Whether trading in Taiwan stocks, US stocks, or CFDs, risk management must come first to avoid being eliminated by a black swan event.