Leverage, Margin, Funding and Liquidation

Leverage is how a small edge becomes a large return, and how a correct trade becomes a forced loss. Every leveraged position in this KB rests on a promise to post collateral, and every margin system has the same three parts: an initial requirement to open the position, a maintenance level below which the lender calls for more, and a liquidation process when the call is not met. In US securities accounts the rules are layered. The Federal Reserve's Regulation T sets the initial requirement for buying stock on margin at 50% of the purchase price; FINRA Rule 4210 sets maintenance (25% of current market value for long margin securities — FINRA Regulatory Notice 12-44) and a $2,000 minimum equity for a margin account (Shared facts); brokers' "house" requirements sit on top. On 14 Apr 2026 the SEC approved FINRA's replacement of the pattern-day-trader rule and its $25,000 minimum with new intraday margin standards, effective 4 Jun 2026, with an optional phase-in to 20 Oct 2027 (FINRA Regulatory Notice 26-10; Shared facts). Options sellers face separate formulas (for an uncovered equity option, 20% of the underlying's value less any out-of-the-money amount, minimum 10%, plus the premium — Cboe Margin Manual); larger accounts can use portfolio margin, which sets the requirement by stress-testing the whole account (minimum $100,000 of equity at firms with full real-time intraday monitoring — FINRA guidance, verify current text). Futures margin is set by the clearing house as a performance bond — CME's SPAN, now being replaced by SPAN 2 (equity futures moved in Oct–Nov 2024, CME clearing notices) — and is settled in cash every day. Off-exchange, prime brokers lend through margin loans, repo and total return swaps; Archegos used swaps at several banks to build concentrated positions that no single bank saw in full, and its default on 26 Mar 2021 cost banks more than $10bn (Credit Suisse ~$5.5bn, Nomura ~$2.9bn — Shared facts). Crypto venues run the most aggressive version: automated liquidation engines and auto-deleveraging (ADL) of winning traders; on 10–11 Oct 2025 more than $19bn of leveraged crypto positions were liquidated in about a day, the largest such event recorded (CoinGlass data, as reported). This section explains how each margin system works, how funding and repo carry leverage through the financial system, how margin calls turn into liquidation cascades, and how to read leverage claims. Section 06 covers how much risk to take; this section covers how leverage is supplied, and taken away.