Cushion (distance to margin call)

Explanation

A margin call happens when your collateral value falls to Loan ÷ (1 − maintenance). The cushion is the percentage drop from today’s value to that trigger point. A 40% cushion means your portfolio could lose 40% of its value before you face a call.

Your cushion shrinks when:

• markets fall (collateral shrinks while the loan does not);
• you borrow more, or unpaid interest is added to the loan;
• the lender raises the maintenance requirement, which can happen without notice in volatile markets.

It grows when you pay down the loan, add collateral, or markets rise.

A useful habit is to compare your cushion with historical declines. The S&P 500 has fallen roughly 25% to 35% several times in recent decades and more than 50% in 2007 to 2009, and concentrated positions can fall far more. A cushion smaller than a plausible bear market means a call is a realistic possibility rather than a remote one. Keep in mind that the cushion assumes your collateral moves as a whole; a concentrated holding may face a higher maintenance requirement.

In scenarios, the app shows your current cushion and tracks it each period, and Monte Carlo results show how often it reached zero.

Example

Portfolio: $1,000,000 of equities. Loan: $500,000. Maintenance requirement: 30%.

• Collateral × (1 − maintenance): $1,000,000 × 0.70 = $700,000
• Loan ÷ that: $500,000 ÷ $700,000 = 0.7143
• Cushion: 1 − 0.7143 = 28.57%

A call would come if the portfolio dropped to $500,000 ÷ 0.70 = $714,286.

With FINRA’s 25% minimum instead: 1 − $500,000 ÷ $750,000 = 33.33% (call at $666,667).

With a smaller $200,000 loan at 30%: 1 − $200,000 ÷ $700,000 = 71.43%.