An SMA account holds cash and securities together, and your broker lends you money against what you own

A Securities-based Margin Account (SMA) is a brokerage account that lets you borrow money from your broker to buy more investments than you could pay for in cash alone. The investments you own—stocks, bonds, mutual funds—serve as collateral for that loan. Your broker sets a limit on how much you can borrow based on the value of what you already hold. If the value of your holdings drops, your borrowing power drops with it, and your broker can force you to sell positions to bring the account back into balance.

The core difference from a regular cash account is leverage: you can control more assets than you have money for. The cost is interest on the borrowed amount, plus the risk that a market downturn forces you to sell at a loss to meet margin requirements. An SMA account is not the same as a margin account used for day trading—it is designed for longer-term investors who want to borrow against their portfolio.

Key Takeaways

  • An SMA account lets you borrow cash from your broker using your existing investments as collateral, giving you more buying power than your cash balance alone.
  • Your broker sets a maximum loan amount based on the value of your holdings, typically 50 to 70 percent of what your securities are worth.
  • You pay interest on the borrowed amount, and if your investments lose value, your available borrowing power shrinks when ready.
  • If your account falls below the maintenance requirement—usually 25 to 30 percent of the loan value—your broker can force you to sell positions without asking permission.
  • An SMA account is different from a margin account used for day trading and carries the risk of forced liquidation if markets move against you.

How the borrowing limit works

Your broker calculates your borrowing power based on the current market value of your securities. Most brokers allow you to borrow between 50 and 70 percent of what your stocks and bonds are worth—the exact percentage depends on the type of securities you hold and your broker's policies. Stocks typically allow higher loan ratios than bonds or mutual funds because they are easier to sell quickly if needed.

If you own $100,000 in stocks and your broker allows 50 percent lending, you can borrow up to $50,000. If the value of your stocks rises to $120,000, your borrowing power rises to $60,000. If the stocks fall to $80,000, your borrowing power falls to $40,000. This happens in real time as markets move, which is why investors with SMA accounts watch their account values closely.

The amount you actually borrow does not have to equal your maximum. You might borrow $20,000 against $100,000 in holdings and leave $30,000 in unused borrowing power. That unused power is sometimes called your SMA balance or buying power—it represents cash you could borrow if you wanted to buy more securities.

Interest and costs

You pay interest on whatever amount you actually borrow, not on your maximum borrowing power. The interest rate varies by broker and by the size of your loan. Larger loans often carry lower rates. Rates typically range from 4 to 12 percent per year, though this varies with market conditions and your broker's pricing. Some brokers charge a base rate plus a spread; others use a tiered structure where the rate drops as your loan balance grows.

Interest accrues daily and is usually charged monthly or quarterly. If you borrow $50,000 at 6 percent annual interest, you owe roughly $250 per month in interest alone. That cost comes out of your account or is added to your loan balance. Unlike a mortgage, there is no fixed repayment schedule—you can pay back as much or as little as you want, whenever you want, as long as you stay above the maintenance requirement.

Maintenance requirements and forced selling

Your broker requires you to keep a minimum amount of equity in the account at all times. This maintenance requirement is usually 25 to 30 percent of your loan balance, though some brokers set it higher. If your account falls below that threshold—because your securities lost value or you borrowed more—your broker can force you to sell positions to bring the account back into compliance. This forced sale is called a margin call.

A margin call does not require your permission. Your broker can liquidate whatever positions they choose, in whatever order they choose, to raise enough cash to meet the requirement. You might wake up to find that half your portfolio has been sold without you making the decision. This is the biggest risk of an SMA account: in a sharp market downturn, you can be forced to lock in losses at the worst possible time.

For example: you borrow $50,000 against $100,000 in stocks. Your maintenance requirement is 30 percent of the loan, or $15,000. Your account equity must stay above $65,000 ($50,000 loan plus $15,000 minimum equity). If your stocks fall to $60,000, you are $5,000 below the requirement. Your broker can when ready sell $5,000 of your holdings to restore the balance, whether or not you wanted to sell.

SMA accounts versus margin accounts for trading

An SMA account and a margin account both use borrowed money, but they serve different purposes. A margin account is designed for active traders who buy and sell the same day or within days. It allows intraday buying power—you can buy and sell multiple times in a single day using borrowed money. Margin accounts have lower maintenance requirements, sometimes as low as 15 percent, because the broker expects positions to turn over quickly.

An SMA account is built for longer-term investors. You borrow money to buy securities you plan to hold for weeks, months, or years. The maintenance requirement is higher (25 to 30 percent), and the interest rate may be lower because the broker faces less risk. You cannot use an SMA account for day trading—most brokers will not allow the rapid buying and selling that margin accounts permit. If you are a frequent trader, you need a margin account. If you want to borrow against a long-term portfolio, an SMA account is the right structure.

When an SMA account makes sense

An SMA account is useful if you have a substantial portfolio and want to buy more securities without selling what you already own. A retiree with $500,000 in stocks might borrow $200,000 to buy real estate or fund a business without disrupting their investment strategy. An investor who expects a large bonus in six months might borrow now against future income, knowing they can repay the loan when the bonus arrives.

An SMA account is not useful if you have limited savings, unstable income, or a low risk tolerance. The interest cost adds up quickly, and a market downturn can force you to sell at the worst time. If you cannot afford to lose money on a margin call, you should not open an SMA account. The same applies if you do not have the time or discipline to monitor your account regularly—you need to watch your loan balance and your securities values to avoid surprises.

How to open and manage an SMA account

Most full-service brokers and many online brokers offer SMA accounts. You typically need a minimum account balance—often $25,000 to $100,000—and you must pass a suitability review. The broker will ask about your investment experience, income, and risk tolerance to confirm you understand the risks. You sign an agreement acknowledging that you can lose money and that your broker can force you to sell without permission.

Once the account is open, you manage it through your broker's platform. You can see your current loan balance, your available borrowing power, your maintenance requirement, and your interest charges. Most brokers send monthly statements showing interest accrued and the current loan balance. Some offer tools to calculate how much you can borrow based on your holdings, or alerts if you are approaching a margin call. The key is to check your account regularly and understand how much you have borrowed and what it is costing you.

Frequently Asked Questions

What happens if I cannot meet a margin call?

Your broker will force you to sell securities to raise the required cash. You do not have a choice in which positions are sold or when. If forced selling does not raise enough cash, your broker can close your account and pursue you for any remaining debt. This is rare but possible in extreme market conditions.

Can I use an SMA account to buy anything other than securities?

No. An SMA account is specifically for buying and holding stocks, bonds, mutual funds, and similar securities. You cannot use the borrowed money to buy real estate, a car, or anything else. Some brokers offer other loan products for non-securities purchases, but those are separate from an SMA account.

Is the interest on an SMA loan tax deductible?

Interest on borrowed money used to buy investments may be deductible as investment interest expense, but only up to the amount of investment income you earned that year. The rules are complex and depend on your specific situation. Consult a tax professional before assuming your SMA interest is deductible.

What if my broker goes out of business?

Your securities are protected by SIPC (Securities Investor Protection Corporation) up to $500,000 per account. However, SIPC does not protect you from losses caused by margin calls or market declines. Your loan obligation remains even if your broker fails—you would owe the money to whoever takes over the account.

Can I pay back my SMA loan early without penalty?

Yes. Most brokers allow you to repay an SMA loan at any time without penalty. You can pay back the entire balance or make partial payments. Interest stops accruing on the amount you repay, so paying back early saves you money on interest charges.