Every Day a Margin Position Stays Open, the Liquidation Price Moves Up

A price chart records what a security did. It does not record what the account did. Two positions can trace the same line on the same chart over the same six months and leave the account in two different places, because one of them was financed and the other was not.

The costs at issue here are not the ones set at execution. They are the ones that accrue while nothing is happening on screen: interest on a debit balance, the fee on borrowed stock, and the substitute payment a short seller owes when the borrowed shares go ex-dividend. All three are proportional to the number of days the position stays open. None of them mark the chart. And the first of them quietly moves the price at which the position gets liquidated without a decision from the trader.

What the Chart Records and What It Omits

A candle contains a price range and a volume figure. It contains no information about how the position was funded. A cash-funded long and a 50%-financed long produce identical chart output and different account output, and the gap between them widens with every day the position is held.

Financing is what Regulation T governs. Under 12 CFR 220.12, the required margin for a margin equity security in a margin account is "50 percent of the current market value of the security or the percentage set by the regulatory authority where the trade occurs, whichever is greater." Half the purchase can be borrowed. The borrowed half is a loan, and a loan carries interest for as long as it is outstanding.

For a short sale of a nonexempted security, the same section sets the requirement at "150 percent of the current market value of the security." The proceeds of the sale stay in the account and a further 50% of market value is posted alongside them. But posting margin is not the same as borrowing shares, and borrowing shares is a separate transaction with a separate price.

Two Kinds of Cost on One Timeline

It helps to separate costs by what they are indexed to. Execution costs are indexed to events: an entry, an exit, an adjustment. Carrying costs are indexed to elapsed time. The distinction matters because the second category is invisible to anyone reviewing a trade by looking at where it was entered and where it was exited.

Three meters run on the time axis:

• Margin interest on the debit balance. Accrues daily on whatever amount is borrowed, whether or not the position moves.
• Stock borrow fee, on short positions. The rate is negotiated in the loan, not fixed by rule. Since the adoption of 17 CFR 240.10c-1a, a covered person who agrees to a covered securities loan must report it to a registered national securities association by the end of the day it is effected, including, for a loan collateralized by cash, "the rebate rate or any other fee or charges," and for a non-cash loan, "the securities lending fee or rate, or any other fee or charges." The rate is a market outcome; the reporting obligation makes it a documented one.
• Substitute payments, on short positions, when the borrowed stock goes ex-dividend. Not smooth. Steps on discrete dates.

Only the third of these is lumpy. The first two are close to linear in days held, which means the honest way to size them is per day and then multiply, not to estimate them at the end and be surprised.

The Financing Baseline Has Moved a Long Way

What a specific firm charges on a margin loan is set in its own schedule and disclosed in its margin agreement. But the general level of short-term borrowing costs is published, and it has not been stable.

The Federal Reserve's H.15 release carries the bank prime loan rate as a monthly average. It sat at 3.25% from April 2020 through February 2022 — twenty-three consecutive months at the same figure. It reached 8.50% in August 2023 and stayed there through August 2024. As of the July 2026 monthly average it stands at 6.75%.

Run that through a debit balance. Thirty days of interest on $10,000 borrowed, on a 365-day basis:

3.25%	$26.71	the 2020–2021 plateau
6.75%	$55.48	the 2026 level
8.50%	$69.86	the 2023–2024 plateau

The same position, held the same number of days, on the same chart pattern, costs roughly two and a half times as much to carry at the high plateau as at the low one. A holding-period rule written when carry was near-free is not the same rule when carry is not.

The Liquidation Price Is a Moving Number

This is the part that gets missed, because it converts a cost into a risk.

FINRA Rule 4210(c)(1) sets the maintenance floor for a long position at "25 percent of the current market value of all margin securities." Equity in the account is market value minus the debit balance. The position falls below the floor when equity drops under a quarter of market value.

Work it at entry. A share bought at 100 with the Regulation T 50% initial requirement leaves a debit balance of 50. Equity equals price minus 50, and the floor is breached when price minus 50 falls below 0.25 times price — that is, at a price of 66.67. A 33.33% decline.

Now let the loan accrue. Interest is charged on the debit balance, and unless cash is added it is added to the debit balance. At 6.75% simple interest, the debit balance is 51.66 after 180 days and 53.38 after a full year. The trigger price follows it up.

The cushion narrows from 33.33% at entry to 31.11% after 180 days and 28.83% after 365 days. Nothing on the chart changed. No decision was made. The price at which the account falls below the maintenance floor rose 4.50 points in a year, entirely from accrued interest.

What happens at that point is not discretionary. 12 CFR 220.4(c) states that "a margin call shall be satisfied within one payment period after the margin deficiency was created or increased," and that if the call "is not met in full within the required time, the creditor shall liquidate securities sufficient to meet the margin call or to eliminate any margin deficiency existing on the day such liquidation is required, whichever is less." A deficiency of "$1000 or less" requires no action.

The payment period is short. 12 CFR 220.2 defines it as "the number of business days in the standard securities settlement cycle in the United States, as defined in paragraph (a) of SEC Rule 15c6-1, plus two business days." Since 17 CFR 240.15c6-1(a) sets that cycle at no later than the first business day after the trade date, the payment period is three business days.

Firms are also permitted to be stricter than the floor, and they say so in advance. The margin disclosure statement required by FINRA Rule 2264(a) tells customers that "the firm can sell your securities or other assets without contacting you," that "you are not entitled to choose which securities or other assets in your account(s) are liquidated or sold to meet a margin call," that the firm "can increase its 'house' maintenance margin requirements at any time and is not required to provide you advance written notice," and that "you are not entitled to an extension of time on a margin call." A house requirement above 25% moves the trigger price up further than the arithmetic above.

On the Short Side, Three Meters Run at Once

A short position carries the same interest logic in reverse and adds two things a long does not have.

First, the borrow has to exist before the order is accepted. 17 CFR 242.203(b)(1) requires that the broker have "borrowed the security, or entered into a bona-fide arrangement to borrow the security," or "reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due," and have "documented compliance" with that requirement. A borrow that exists at entry is not guaranteed to remain on the same terms, and a loan that is recalled has to be replaced or the position closed.

Second, delivery failures have a clock. Under 17 CFR 242.204(a), a participant that has not delivered by settlement date must close out the fail to deliver by "the beginning of regular trading hours on the settlement day following the settlement date." Narrow exceptions extend that: fails attributable to long sales and to bona-fide market making run to "the third consecutive settlement day following the settlement date," and the case of securities deemed owned but subject to a restriction runs to "the thirty-fifth consecutive calendar day following the trade date."

Third, the maintenance arithmetic runs the other way and is tighter. FINRA 4210(c)(3) requires "$5.00 per share or 30 percent of the current market value, whichever amount is greater, of each stock 'short' in the account selling at $5.00 per share or above." Below $5.00, 4210(c)(2) requires "$2.50 per share or 100 percent of the current market value, whichever amount is greater" — a requirement that scales in dollars per share rather than percent, and therefore bites hardest on low-priced names.

Start from the Regulation T 150%. A share shorted at 100 leaves 150 of credit in the account. Equity is 150 minus the price. The 30% floor is breached when 150 minus price falls below 0.30 times price — at a price of 115.38, a rise of 15.38%. That is less than half the room the long side had at entry, before any carrying cost is counted. Add a $0.50 substitute payment and the credit becomes 149.50, moving the trigger to 115.00.

The Forty-Fifth Day Is a Boundary

The substitute payment deserves a note, because it is easy to overstate and easy to understate.

Overstating it: the payment corresponds to a distribution the short seller does not receive, and the share price adjusts on the ex-date. In cash terms alone it is closer to a wash than to a pure loss.

Understating it: the treatment is not symmetric across holding periods. 26 U.S.C. 263(h) provides that where a payment is made in lieu of a dividend on stock used in a short sale, and "the closing of such short sale occurs on or before the 45th day after the date of such short sale, then no deduction shall be allowed for such payment." The disallowed amount instead increases the basis of the stock used to close the short sale. A short held 44 days and a short held 46 days across the same ex-date are not the same transaction.

This is the general shape of the whole problem. Holding period is not a neutral parameter. It is an input to interest, to borrow fees, to the maintenance trigger, and to a statutory threshold on day 45.

What Would Invalidate This

Several conditions make the frame above either irrelevant or wrong.

• No leverage, no short, no carry. A fully cash-funded long position has no debit balance, no borrow, and no substitute payment. The entire structure collapses to zero.
• Intraday holding periods. Interest and borrow fees on a position opened and closed the same session are close to nil. A different set of costs governs there, and this analysis says nothing useful about it.
• The trigger arithmetic assumes stated conditions. The 66.67 / 68.89 / 71.17 sequence assumes simple interest at 6.75%, no deposits, no withdrawals, no dividends received, no rate change, and the 25% regulatory floor rather than a higher house requirement. Every one of those assumptions is routinely violated in a live account. The direction of the effect is robust; the specific numbers are not portable.
• Firm-level terms dominate the benchmark. The prime rate is a published bank lending benchmark, not a brokerage margin rate. Rate tiers, base rates, and house requirements vary between firms and by balance size. The published series shows the level and the movement, not the bill.
• Products with embedded financing. Futures, options, and leveraged funds price the cost of carry inside the instrument rather than as a separate line. The costs do not vanish; they stop appearing as interest, and this decomposition does not apply cleanly.
• A different regulatory regime. Everything cited here is United States federal regulation or FINRA rule. Non-US markets set initial and maintenance requirements, close-out deadlines, and lending disclosure differently.

Concrete Framework

1. Compute the daily carry before entry, not after exit. Debit balance times the applicable rate divided by 365 gives a per-day figure. Multiply by the planned holding period. If that number is large relative to the expected move, the position is being asked to pay rent it may not earn.
2. Write down the trigger price at entry, then write down where it will be at the planned exit date. Debit balance grown by accrued interest, divided by 0.75 for a long under the 25% floor. Use the firm's house requirement in place of 25% if it is higher.
3. Confirm the house maintenance requirement in the margin agreement, not from the regulatory minimum. FINRA Rule 2264 requires the firm to disclose that it can raise that requirement without advance written notice. Assume the floor is above 25% unless the agreement says otherwise.
4. Budget three business days, not a week. One payment period under Regulation T is the settlement cycle plus two business days, which is three business days under T+1. Cash that needs three days to arrive does not meet a call that is due in three days.
5. On the short side, record the borrow rate at entry and re-check it. The rate is a term of a loan that can be recalled or repriced. Treat a change in the borrow rate as new information about the position, not as an administrative detail.
6. Check the ex-dividend calendar against the planned holding period before shorting. A substitute payment obligation and the day-45 threshold in 26 U.S.C. 263(h) are both known in advance. Neither is a surprise unless it is left unchecked.
7. Log carry as a separate line in the trade journal. Entry price, exit price, and result do not decompose into what the thesis earned and what the financing consumed. Two entries — realized price change and cumulative carry — do.
8. Re-check the interest assumption when the published baseline moves. The prime rate moved from 3.25% to 8.50% and back to 6.75% inside six years. A carrying-cost assumption written at one of those levels is wrong at the others, and a maximum holding period derived from it needs to be recomputed rather than inherited.

The position that looks flat on the chart is not flat in the account. It is paying, every day, for the privilege of remaining open — and the amount it pays is set by rules and rates that are published, checkable, and entirely knowable before the order is sent.