How do I calculate when a margin call is triggered using the maintenance margin formula?

Margin calls are a high-frequency CFA Level I topic. Here is the framework.

Setup: When you buy on margin, you borrow part of the purchase price from your broker. The equity in your account is the market value of the shares minus the loan.

Key formula — trigger price for a long position:

> P_trigger = P_0 x (1 - Initial Margin) / (1 - Maintenance Margin)

Or equivalently:

> P_trigger = Loan / (Shares x (1 - Maintenance Margin))

Worked Example:

You buy 1,000 shares of Crestwood Dynamics at $80 per share with 50% initial margin and 25% maintenance margin.

The margin call trigger price:

P_trigger = $80 x (1 - 0.50) / (1 - 0.25) = $80 x 0.50 / 0.75 = $53.33

Verification at $53.33:

• Position value = 1,000 x $53.33 = $53,333
• Loan remains = $40,000
• Equity = $53,333 - $40,000 = $13,333
• Margin ratio = $13,333 / $53,333 = 25.0% (exactly at maintenance)

If the price falls below $53.33, your equity ratio drops below 25% and you receive a margin call.

For short sales, the formula flips because you owe shares rather than cash:

> P_trigger = P_0 x (1 + Initial Margin) / (1 + Maintenance Margin)

If you shorted at $80 with 50% initial and 30% maintenance:

P_trigger = $80 x 1.50 / 1.30 = $92.31

The stock rising above $92.31 triggers a margin call on the short.

Exam tips:

• Always check your answer by plugging the trigger price back in and verifying the margin ratio equals the maintenance rate
• Watch for questions that add dividends or interest charges — these change the loan balance
• If the question says 'margin requirement' without specifying, assume it means initial margin

Try our CFA Level I equity practice questions for more margin calculation drills.