Series 7 Margin Accounts Guide 2026: Reg T, Calculations & SMA Explained

Series 7 Margin Accounts Guide 2026

Margin accounts and options are universally considered the two hardest topics on the Series 7 exam. While options get most of the attention, margin questions can be just as tricky -- they require you to memorize formulas, understand multiple regulatory requirements, and perform multi-step calculations under time pressure.

Expect 10-15 margin-related questions on the Series 7, covering everything from Regulation T initial requirements and SMA buying power to maintenance margin calls and pattern day trader rules. That is roughly 8-12% of your total scored questions -- enough to make the difference between passing and failing.

This guide breaks down every margin concept you need, with complete calculation walkthroughs and memory tricks that will make exam day straightforward.

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What Is a Margin Account?

A margin account allows a customer to buy securities on credit -- borrowing money from the broker-dealer to pay for part of the purchase. Think of it like a mortgage for stocks: you put up a portion of the price (your equity), and the broker-dealer lends you the rest.

Key Concepts

How It Works

1. Customer opens a margin account and signs a margin agreement
2. Customer buys securities, depositing the required margin (currently 50% under Reg T)
3. The broker-dealer lends the remaining amount -- this becomes the debit balance
4. The purchased securities serve as collateral (hypothecation)
5. The broker-dealer charges interest on the debit balance (this is how the firm profits from margin lending)

The loan consent form is optional but allows the broker-dealer to lend the customer's margin securities to other customers for short selling. Most firms require it as a condition of opening a margin account.

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Regulation T: The Federal Reserve's Margin Rule

Regulation T is the Federal Reserve Board's rule governing the extension of credit by broker-dealers. It is the most fundamental margin rule tested on the Series 7.

Reg T Key Rules

Reg T in Action

When a customer buys $100,000 of stock on margin:

Purchase Price:          $100,000
Reg T Requirement (50%): $50,000  ← Customer must deposit this
Broker-Dealer Loan:      $50,000  ← This becomes the debit balance

Important Reg T rules for the exam:

• The FRB sets Reg T -- not FINRA, not the SEC, not the exchanges
• The 50% requirement is the current Reg T rate (the Fed can change it, but it has been 50% for decades)
• If a customer fails to meet Reg T, the broker-dealer must liquidate the position or request an extension from FINRA
• Reg T applies to the initial purchase only -- once the position is established, FINRA maintenance requirements take over
• The $2,000 FINRA minimum means that if 50% of the purchase is less than $2,000, the customer must still deposit $2,000

Memory Trick: "T for Two -- Reg T = 50% (half) and the minimum deposit is $2,000."

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The Long Margin Account Formula

The long margin account formula is the foundation of all margin calculations. Memorize this formula -- it appears on almost every margin question.

The Formula

Market Value (MV) = Debit Balance (DB) + Equity (EQ)

Or rearranged:

Equity = Market Value - Debit Balance

Key Principle

The debit balance does not change when the market value of the securities changes. Only equity changes as the market moves.

• When the market goes UP → equity increases (good for the customer)
• When the market goes DOWN → equity decreases (bad for the customer)

Complete Example: Opening a Long Margin Account

A customer buys $100,000 of stock on margin:

Long Margin Account - Day 1:
Market Value:    $100,000
- Debit Balance: -$50,000  (broker loan, stays fixed)
= Equity:         $50,000  (50% -- meets Reg T)

Scenario 1: Stock rises to $140,000

Market Value:    $140,000
- Debit Balance: -$50,000  (unchanged!)
= Equity:         $90,000  (64.3%)

The customer's equity increased by $40,000 -- exactly the amount the stock appreciated.

Scenario 2: Stock drops to $70,000

Market Value:    $70,000
- Debit Balance: -$50,000  (unchanged!)
= Equity:        $20,000   (28.6%)

The customer's equity dropped by $30,000. At 28.6%, this account is above the 25% FINRA minimum but below 50% Reg T, making it a restricted account.

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The Short Margin Account Formula

Short selling is the reverse of buying long -- the customer borrows shares, sells them, and hopes to buy them back later at a lower price. The formula is different from long margin accounts.

The Formula

Credit Balance (CR) = Short Market Value (SMV) + Equity (EQ)

Or rearranged:

Equity = Credit Balance - Short Market Value

Key Principle

In a short account, the credit balance is fixed (similar to how the debit balance is fixed in a long account). The credit balance equals the sale proceeds plus the Reg T deposit.

• When the stock goes DOWN → equity increases (good for the short seller)
• When the stock goes UP → equity decreases (bad for the short seller)

Complete Example: Opening a Short Margin Account

A customer sells short $80,000 of stock:

Short Margin Account - Day 1:
Short Sale Proceeds:     $80,000
+ Reg T Deposit (50%):  +$40,000
= Credit Balance:       $120,000  (fixed)

Credit Balance:         $120,000
- Short Market Value:   -$80,000
= Equity:                $40,000  (50% -- meets Reg T)

Scenario 1: Stock drops to $50,000 (profit for short seller)

Credit Balance:         $120,000  (unchanged!)
- Short Market Value:   -$50,000
= Equity:                $70,000  (140%)

Excellent -- the equity grew as the stock fell.

Scenario 2: Stock rises to $100,000 (loss for short seller)

Credit Balance:         $120,000  (unchanged!)
- Short Market Value:  -$100,000
= Equity:                $20,000  (20%)

At 20%, this is below the 30% FINRA short maintenance requirement -- a maintenance margin call will be issued.

Memory Trick: "Long = MDE (Market Value, Debit, Equity); Short = CSE (Credit, Short Market Value, Equity). The middle term is fixed in both cases."

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SMA: Special Memorandum Account

SMA is one of the trickiest concepts on the Series 7. It acts as a line of credit or memorandum balance that tracks the customer's excess equity.

What Creates SMA?

Critical SMA Rules

1. SMA never decreases due to market depreciation. Once created, SMA stays in the account even if the market value drops. This is the most important SMA rule for the exam.

2. SMA is checked at the close of business each day. It is calculated based on end-of-day market values.

3. Using SMA creates a new debit balance. If you use SMA to buy stock, you are borrowing more from the broker-dealer.

4. SMA cannot be used if it would cause the account to fall below maintenance requirements. Even if SMA exists, the broker-dealer will not let you use it if doing so would trigger a maintenance call.

SMA Buying Power

Long Buying Power = SMA x 2  (because Reg T is 50%, each $1 of equity supports $2 of purchases)
Short Buying Power = SMA     (SMA can be used directly to cover the Reg T deposit for short sales)

SMA Example

Starting account:

Market Value:    $100,000
- Debit Balance: -$50,000
= Equity:         $50,000  (50% -- meets Reg T exactly, SMA = $0)

Stock rises to $120,000:

Market Value:    $120,000
- Debit Balance: -$50,000
= Equity:         $70,000  (58.3%)

Reg T Requirement (50% of $120,000) = $60,000
Equity:                                $70,000
Excess Equity (SMA):                   $10,000

Buying power: $10,000 SMA x 2 = $20,000 of additional long stock purchases.

Now suppose the stock drops back to $100,000:

Market Value:    $100,000
- Debit Balance: -$50,000
= Equity:         $50,000  (50%)

SMA still = $10,000!  (SMA does NOT decrease with market depreciation)

The customer still has $10,000 of SMA and $20,000 of buying power, even though the equity is now exactly at Reg T. However, using the SMA must not push the account below the 25% maintenance requirement.

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Maintenance Requirements & Margin Calls

After the initial purchase (governed by Reg T), the account is monitored against FINRA maintenance requirements.

FINRA Minimums

Note: Most broker-dealers set house requirements higher than the FINRA minimums (typically 30-35% for long accounts and 35-40% for short accounts). The Series 7 exam tests FINRA minimums unless stated otherwise.

Maintenance Call Trigger for Long Accounts

The formula to find the market value that triggers a maintenance call:

Trigger Market Value = Debit Balance / (1 - Maintenance %)

For FINRA's 25% minimum:

Trigger MV = Debit Balance / 0.75

Example: Debit balance = $40,000

Trigger MV = $40,000 / 0.75 = $53,333

When the market value drops to $53,333:

Market Value:    $53,333
- Debit Balance: -$40,000
= Equity:         $13,333  ($13,333 / $53,333 = 25% -- at the trigger)

Maintenance Call Trigger for Short Accounts

Trigger SMV = Credit Balance / (1 + Maintenance %)

For FINRA's 30% minimum:

Trigger SMV = Credit Balance / 1.30

Example: Credit balance = $130,000

Trigger SMV = $130,000 / 1.30 = $100,000

When the short market value rises to $100,000:

Credit Balance:          $130,000
- Short Market Value:   -$100,000
= Equity:                 $30,000  ($30,000 / $100,000 = 30% -- at the trigger)

Restricted Accounts

A restricted account has equity between the maintenance requirement and Reg T:

• Long restricted: Equity between 25% and 50% of market value
• Short restricted: Equity between 30% and 50% of short market value

Rules for restricted accounts:

• The customer does NOT have to deposit more money just because the account is restricted
• Any new purchases must meet Reg T (50% of the new purchase)
• If the customer sells securities, 50% of the proceeds (the Reg T portion) is released to SMA; the other 50% goes to reduce the debit balance
• The account remains restricted until equity exceeds 50%

Memory Trick: "25-30-50 -- Long maintenance is 25%, Short maintenance is 30%, Reg T is 50%. The short side always needs more because short selling carries theoretically unlimited risk."

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Day Trading Margin Rules

Day trading is buying and selling (or selling short and covering) the same security on the same day.

Pattern Day Trader (PDT) Rules

Day Trading Buying Power Calculation

Day Trading Buying Power = Maintenance Excess x 4

Maintenance Excess = Equity above the 25% maintenance requirement.

Example:

Account Equity:              $50,000
Maintenance Requirement:     $12,500  (25% of $50,000 market value)
Maintenance Excess:          $37,500

Day Trading Buying Power:    $37,500 x 4 = $150,000

This customer could day trade up to $150,000 worth of securities.

Important for the exam: If a pattern day trader's equity falls below $25,000, the account is frozen for day trading (but can still trade normally) until the $25,000 minimum is restored by depositing additional funds.

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Combined Margin Account: Long and Short Together

Many Series 7 questions present accounts with both long and short positions. The key is to calculate each side separately and then combine.

Combined Account Calculation

Long Side:
Long Market Value (LMV)  - Debit Balance (DB) = Long Equity

Short Side:
Credit Balance (CR)  - Short Market Value (SMV) = Short Equity

Combined Equity = Long Equity + Short Equity

Complete Example

A customer has the following positions:

LONG SIDE:
Long Market Value:   $200,000
Debit Balance:       -$80,000
Long Equity:         $120,000

SHORT SIDE:
Credit Balance:      $150,000
Short Market Value: -$100,000
Short Equity:         $50,000

COMBINED:
Total Equity = $120,000 + $50,000 = $170,000

For Reg T purposes, the combined account must have equity of at least 50% of the combined market values:

Reg T Requirement = 50% x (LMV + SMV)
                  = 50% x ($200,000 + $100,000)
                  = $150,000

Actual Equity:  $170,000
Excess Equity:   $20,000  (this becomes SMA)

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Securities NOT Eligible for Margin

Not all securities can be purchased on margin. The exam frequently tests which securities require full cash payment.

After 30 days, many of these securities (new issues, mutual fund shares) become eligible for margin.

Memory Trick: "PNO-30 -- Penny stocks, New issues, Options premiums are never on margin. New issues and mutual funds become marginable after 30 days."

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Exam Calculation Walkthrough: Step-by-Step Margin Math

Here are the types of calculations you must master. Work through each one until the process is automatic.

Problem 1: Finding Equity After a Price Change

Question: A customer buys $60,000 of stock in a margin account, meeting the Reg T requirement. The stock rises to $80,000. What is the equity?

Step 1: Determine the initial debit balance.

Initial Purchase:        $60,000
Reg T Deposit (50%):    -$30,000  (customer's equity)
Debit Balance:           $30,000  (broker loan)

Step 2: Calculate equity at the new market value.

Market Value:    $80,000
- Debit Balance: -$30,000  (unchanged)
= Equity:         $50,000  (62.5%)

Answer: $50,000

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Problem 2: Calculating SMA and Buying Power

Question: Using the account from Problem 1 (MV = $80,000, DB = $30,000, EQ = $50,000), what is the SMA and buying power?

Step 1: Calculate the Reg T requirement at the current market value.

Reg T Requirement = 50% x $80,000 = $40,000

Step 2: Calculate SMA (excess equity above Reg T).

SMA = Equity - Reg T Requirement
    = $50,000 - $40,000
    = $10,000

Step 3: Calculate buying power.

Buying Power = SMA x 2 = $10,000 x 2 = $20,000

Answer: SMA = $10,000, Buying Power = $20,000

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Problem 3: Finding the Maintenance Call Trigger

Question: A long margin account has a debit balance of $60,000. At what market value will a FINRA minimum maintenance call be triggered?

Trigger MV = Debit Balance / (1 - Maintenance %)
           = $60,000 / (1 - 0.25)
           = $60,000 / 0.75
           = $80,000

Verify:

Market Value:    $80,000
- Debit Balance: -$60,000
= Equity:         $20,000  ($20,000 / $80,000 = 25% ✓)

Answer: $80,000

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Problem 4: Short Account Equity After Price Change

Question: A customer sells short $50,000 of stock, meeting Reg T. The stock drops to $30,000. What is the equity?

Step 1: Determine the initial credit balance.

Short Sale Proceeds:     $50,000
+ Reg T Deposit (50%):  +$25,000
= Credit Balance:        $75,000  (fixed)

Step 2: Calculate equity at the new short market value.

Credit Balance:          $75,000
- Short Market Value:   -$30,000
= Equity:                $45,000  (150%)

Answer: $45,000 -- the short seller has profited significantly as the stock dropped.

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Problem 5: Combined Account with SMA

Question: A combined margin account has: LMV = $100,000, DB = $40,000, CR = $90,000, SMV = $60,000. What is the SMA?

Step 1: Calculate combined equity.

Long Equity  = LMV - DB  = $100,000 - $40,000 = $60,000
Short Equity = CR - SMV  = $90,000 - $60,000  = $30,000
Combined Equity = $60,000 + $30,000 = $90,000

Step 2: Calculate Reg T requirement.

Reg T = 50% x (LMV + SMV)
     = 50% x ($100,000 + $60,000)
     = $80,000

Step 3: Calculate SMA.

SMA = Combined Equity - Reg T Requirement
    = $90,000 - $80,000
    = $10,000

Answer: SMA = $10,000

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Quick Reference: Margin Formulas Cheat Sheet

Memory Trick for Long vs. Short:

• Long = You OWE money (debit balance). Market goes up = good.
• Short = You are OWED money (credit balance). Market goes down = good.
• In both cases, the middle term in the formula is fixed (DB for long, CR for short).

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Top Margin Mistakes to Avoid on Exam Day

1. Forgetting that DB and CR are fixed. The debit balance (long) and credit balance (short) do NOT change when the market moves. Only equity changes.

2. Confusing long and short maintenance. Long = 25%, Short = 30%. Short is always higher because of the unlimited upside risk.

3. Thinking SMA decreases when the market drops. SMA only decreases when you USE it (buy more stock, withdraw cash). Market depreciation does NOT reduce SMA.

4. Using the wrong buying power multiplier. Regular buying power = SMA x 2. Day trading buying power = Maintenance Excess x 4. Do not confuse them.

5. Forgetting that new margin accounts require $2,000 minimum. Even if 50% of the purchase is less than $2,000, the minimum deposit is $2,000.

6. Applying Reg T to non-marginable securities. Penny stocks, new issues (first 30 days), and option premiums must be paid in full.

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Your Series 7 Margin Study Plan

Margin is a topic where repetition is essential. You cannot simply read about margin formulas -- you must practice them until they are automatic. Here is the recommended approach:

1. Memorize the two formulas first -- MV = DB + EQ and CR = SMV + EQ
2. Work 10 long margin problems until you can do them without thinking
3. Work 10 short margin problems until the process is automatic
4. Master SMA and buying power -- know what creates SMA and the 2:1 buying power rule
5. Practice maintenance call calculations -- memorize DB / 0.75 (long) and CR / 1.30 (short)
6. Tackle combined account problems last -- they build on everything above
7. Do 20+ margin practice questions under timed conditions to simulate exam pressure

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Final Thoughts

Margin accounts are one of the most calculation-heavy and rule-heavy topics on the Series 7 exam. The good news is that the calculations follow predictable patterns -- once you memorize the formulas and practice enough problems, margin questions become some of the easiest points on the exam.

The key to mastering margin is structured practice: start with the basic long formula, add short accounts, layer in SMA and buying power, and finish with combined accounts and maintenance calls. Do not try to learn everything at once -- build your skills methodically.

Remember the big picture:

• Reg T (50%) governs the initial purchase -- set by the Federal Reserve Board
• FINRA maintenance (25% long, 30% short) governs ongoing requirements
• SMA is your line of credit from excess equity -- it never goes down from market drops
• Pattern Day Traders need $25,000 minimum and get 4:1 buying power
• The debit balance (long) and credit balance (short) are always FIXED

Master these rules and formulas, and you will turn one of the hardest Series 7 topics into one of your strongest.

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