Understanding long and short margin mechanics
Dec 7, 2025
Most investors do not fully understand margin mechanics, especially how long and short positions interact under modern rules like portfolio margin. This post is meant to teach the basics and clarify common misconceptions, not to tell you what to trade or how much risk to take.
General disclaimers apply. I am not your accountant, broker, or financial advisor, and this is not investment advice. The information here is for general educational purposes only, may not apply to your specific situation, and margin rules vary by broker and can change without notice. Always review your custodian’s margin agreement and consult qualified professionals before trading on margin.
Reg T
Reg T Accounts
LONG SHORT
LMV | DR CR | SMV
|----------- |-----------
| EQ | EQ
-------------------- --------------------
Reg T Margin Reg T Margin
-------------------- --------------------
Finra Margin Finra Margin
-------------------- --------------------
Ex EQ Ex EQ
-------------------- --------------------
SMA SMA
Initial margin. The Fed controls margin since the Stock Market Crash of 1929. Reg T, 12 C.F.R. §220 sets the rules for brokers on what they can lend to you. Under Reg T, the 50% initial margin applies directly to LMV (long market value)—you must provide half the purchase price when opening a long position. For SMV (short market value), the rule is different: the short sale proceeds are held as collateral, and you must deposit an additional 50% of the SMV as margin.
Maintenance margin. FINRA sets maintenance margin at 25% of LMV for long positions and typically 30% of SMV for short positions, with brokers allowed to require higher “house” margins.
Restriction and fed call. Ex EQ (Excess Equity) is the amount of equity in your margin account above the required margin, acting as your buffer against losses and margin calls. If Ex EQ falls below zero, your account is restricted and you cannot open new positions. If your equity drops below maintenance margin, you may receive a margin call and typically have several days to cure by adding funds or reducing positions. If a forced liquidation occurs, custodians will often sell far more than the minimum—commonly around 4x the deficiency—to quickly restore compliance and protect themselves from further risk. s Buying power. SMA (Special Memorandum Account) is a Reg-T–only credit line created from excess equity that tracks Reg-T buying power and does not decrease with market losses—unlike Excess Equity, which can fluctuate in real time (and does not apply under portfolio margin). Under Reg-T, you can withdraw SMA dollar-for-dollar (1:1), and you can use up to 2x your SMA as buying power to open new positions. Just remember that SMA is a “ledger” balance, not exactly cash in the account.
Mixed-netting
12 CFR § 220.2 Equity means the total current market value of security positions held in the margin account plus any credit balance less the debit balance in the margin account.
12 CFR § 220.4(a)(1) All transactions not specifically authorized for inclusion in another account shall be recorded in the margin account.
T Accounts
LMV | SMV
CR | DR
|----------
| EQ
--------------------
Reg T Margin
--------------------
Finra Margin
--------------------
Ex EQ
--------------------
SMA
The aggregation of margin requirements, is legally grounded in Regulation T (12 CFR § 220.4), which establishes the “single account” rule, mandating that all of a customer’s long and short positions be consolidated into one indivisible “Margin Account.” The excess equity from one side of a portfolio (like a Long surplus) to mathematically offset a deficit on the other side (like a Short deficiency), ensuring that as long as the aggregate “Excess Equity” is positive, the account remains compliant with the Fed and FINRA regulations.
PM
PM Accounts
LMV | SMV
CR | DR
|----------
| EQ
--------------------
Port Margin
--------------------
Ex Eq
Portfolio margin (PM) was introduced in 2007, when SEC approved it and FINRA implemented it through Rule 4210.
Risk-based. Brokers stress-test all long and short positions under simulated market moves and set margin equal to the worst projected loss, allowing hedges and offsets to reduce requirements while adding extra margin for concentration, volatility, or hard-to-borrow shorts. Because it’s recalculated continuously, PM can change intraday and requires active risk management. OCC develops TIMS methodology. FINRA incorporates SEC Portfolio Margin rules in Rule 4210. SEC oversees FINRA; reviews and approves OCC rule filings.
15% rule. Under TIMS, the regulatory minimum requirement for most stable, blue-chip stocks (like Apple, Microsoft, etc.) is that your Equity must cover a -15% move in the stock price, or 6.67x buying power. While 6.67x is the regulatory maximum, you might see slightly lower numbers (like 6x) due to house rules and concentration penalties.
§4210(g)(2)(F) The term “theoretical gains and losses” means the gain and loss in the value of individual eligible products and related instruments at ten equidistant intervals (valuation points) ranging from an assumed movement (both up and down) in the current market value of the underlying instrument. The magnitude of the valuation point range shall be as follows:
Portfolio Type Up / Down Market Move
(High & Low Valuation Points)High Capitalization, Broad-based Market Index2 +6% / -8% Non-High Capitalization, Broad-based Market Index3 +/- 10% Any other eligible product that is, or is based on, an equity security or a narrow-based index +/- 15%
Beta exposure
145/45. The notation “145/45” refers to an active extension strategy (often called a “long-short”fund) designed to maintain 100% net market exposure while amplifying the manager’s ability to generate returns. The numbers indicate the portfolio’s gross positioning: the manager holds 145% LMV and 45% SMV (wrt EQ).
145/45 T-account (in millions)
LONG SHORT
LMV | DR CR | SMV
145 | 45 45 | 45
|----------- |-----------
| EQ 100 | EQ 0*
-------------------- --------------------
Reg T Margin 72.5 Reg T Margin 22.5
(50% of LMV) (50% of SMV)
-------------------- --------------------
Finra Margin 36.25 Finra Margin 13.5
(25% of LMV) (30% of SMV)
-------------------- --------------------
Ex EQ 27.5 Ex EQ (22.5)
(Eq - Reg T) (Eq - Reg T)
-------------------- --------------------
SMA 27.5 SMA (22.5)
By aggregating the account, the massive surplus from the LONG side covers the SHORT side’s requirements, leaving you with a compliant (but tight) $5m of Excess Equity.
LMV 145 | SMV 45
CR 45* | DR 45*
|----------
| EQ 100
--------------------
Reg T Margin 95
(72.5 Long + 22.5 Short)
--------------------
Finra Margin 49.75
(36.25 Long + 13.5 Short)
--------------------
Ex EQ 5
(100 Eq - 95 Req)
--------------------
SMA 5
(Aggregated Surplus)
45/45. Unlike the 145/45 investor (who wants to beat the market while riding it), a 45/45 investor does not care where the market goes.
45/45 with 100% Cash
LONG SHORT
LMV 45 | DR 0 CR 100 | SMV 45
|---------- |----------
| EQ 45 | EQ 55
-------------------- --------------------
Reg T Margin 22.50 Reg T Margin 22.50
(50% of LMV) (50% of SMV)
-------------------- --------------------
Finra Margin 11.25 Finra Margin 13.50
(25% of LMV) (30% of SMV)
-------------------- --------------------
Ex EQ 22.50 Ex EQ 32.50
(Eq - Reg T) (Eq - Reg T)
-------------------- --------------------
SMA 22.50 SMA 32.50
LMV 45 | SMV 45
CR 100 | DR 0
|----------
| EQ 100
--------------------
Reg T Margin 45
(22.5 Long + 22.5 Short)
--------------------
Finra Margin 24.75
(11.25 Long + 13.5 Short)
--------------------
Ex EQ 55
(50 Eq - 45 Req)
--------------------
SMA 55
45/45 with 0% cash
LONG SHORT
LMV 45 | DR 0 CR 50 | SMV 45
|---------- |----------
| EQ 45 | EQ 5
-------------------- --------------------
Reg T Margin 22.50 Reg T Margin 22.50
(50% of LMV) (50% of SMV)
-------------------- --------------------
Finra Margin 11.25 Finra Margin 13.50
(25% of LMV) (30% of SMV)
-------------------- --------------------
Ex EQ 22.50 Ex EQ (17.50)
(Eq - Reg T) (Eq - Reg T)
-------------------- --------------------
SMA 22.50 SMA (17.50)
LMV 45 | SMV 45
CR 50 | DR 0
|----------
| EQ 50
--------------------
Reg T Margin 45
(22.5 Long + 22.5 Short)
--------------------
Finra Margin 24.75
(11.25 Long + 13.5 Short)
--------------------
Ex EQ 5
(50 Eq - 45 Req)
--------------------
SMA 5
Exercises
- What is the maximum amount of cash you can withdraw from a “145/45” account without triggering a restriction, and what specific risks would you face immediately after doing so?
- What is the maximum withdrawable cash in a “45/45” account, and why are you unable to withdraw the full cash balance despite it appearing as a credit on the ledger?
- Construct the full balance sheet for a “275/275” strategy, including LMV, SMV, CR, DR, and Equity.
- If an account grants 6x Buying Power, what is the maximum effective leverage ratio available to the trader?
- If you hold 50% in 2x Leveraged ETF as collateral, what is the maximum leverage you can achieve on that position under Reg T? (Hint: Consider the margin requirement scaling).
- Under Reg T, standard mutual funds (excluding money market funds) are subject to a 30-day “seasoning” period where they have no loan value. If you deposit a portfolio that is 50% Cash and 50% newly purchased Mutual Funds, what is your maximum achievable leverage ratio today versus after 30 days?