Margin trading

A margin trading account allows you to borrow funds to trade securities in the secondary equity, options, and futures markets.


Margin account types

Margin borrowing is only for experienced traders with a high-risk tolerance. You may lose more than your initial investment

Regulation T margin

A Reg T account allows you to borrow up to 50% of the total purchase price of a security.

Learn more about margin rates

Portolio margin

A portfolio margin account may increase your leverage beyond the 4 to 1 intraday or 2 to 1 overnight margin available in a Reg T account.

Learn more about portfolio margin requirements.

Understand the risks of margin trading

Margin borrowing is only for experienced investors with a high-risk tolerance. You may lose more than your initial investment.


Before trading on margin, understand the following risks


  • Trading losses may be greater than the value of the initial investment
  • Leveraged investments create a greater potential risk of loss
  • Additional costs from margin interest charges
  • Potential margin calls or liquidation of securities


Margin calls    

 A margin call occurs when the value of a margin account falls below the required margin requirement.


Learn about the different types of margin calls and what to do if you get one.

 

Cash Call: Incurred by exceeding accounts cash available on an opening transaction

 

Due Date: Cash calls are due T+5

 

This call can be met by:

 

  1. Deposit of cash in the entire amount of the call
  2. Deposit of security(ies) equal to the entire amount of the call

 

Other Notes: Account will be limited to closing transactions if another violation occurs within the 90-day restriction period

 

Day Trade Call: Incurred by exceeding your Day Trading Buying Power to satisfy the initial requirement on Day Trading transaction

 

Due Date: Day trade calls are due T+5, buying power will not be restored until the call is met

 

This call can be met by:


  1. Deposit of Cash in the entire amount of the call
  2. Deposit of margin eligible securities valued at (1.33 * the entire amount of the call)

 

Other Info: Money deposited to pay for this call must remain in the account for two days before being withdrawn. This type of call cannot be met by liquidation.

 

Equity Maintenance Call: Incurred by having Pattern Daytrade account equity fall below $25,000 minimum. You will be restricted to closing transactions only until account equity reaches $25,000.

 

Due date: At any time

 

This call can be met by:

 

  1. Deposit of cash in the entire amount of the call
  2. Deposit of security(ies) equal to the entire amount of the call
  3. Market appreciation


Other Info: Thirty days after the last day trade you can request your account be coded as a Non-Pattern Day Trading account as a one-time exception. As a NPDT, your account is limited to 3-day trades (based on opening transactions) in a 5-business day rolling period. If at any point after requesting this status you make more than 3-day trades in a rolling 5 business day period in the account, the account will automatically be re-coded as a Pattern Day Trader and subject to a minimum equity balance of $25,000.

 

 

Maintenance Call: Incurred by having account equity below minimum maintenance requirements for open positions.

 

Due Date: Maintenance calls are due T+3

 

This call can be met by:


  1. Deposit of cash in the entire amount of the call
  2. Liquidation of margin eligible security(ies) valued at 4X amount of call
  3. Liquidation of non-margin eligible security(ies) equal to the amount of call
  4. Market appreciation

 

Accounts with less than 20% margin equity are due in 1 business day. Calculations mentioned above for meeting calls are based on zero account depreciation and will have to be increased if account subsequently loses value.

 

Maintenance calls are generally subject to liquidation on T+4. However, the broker can use its discretion to liquidate securities any time after the issuance of the margin call to protect its financial interest, without notice to the customer.

 

Other Info: If the call is not met, positions will be liquidated to satisfy the maintenance call.

 


Portfolio Margin Maintenance Call: Incurred by having account equity below house maintenance requirement for open positions.

 

Due date: T+2

 

This call can be met by:

 

  1. Deposit of cash in the entire amount of the call
  2. Liquidation – Liquidation to meet these calls can only be done twice per year unless the negative excess amount is attributed to adverse market movements. On the third instance of liquidating to meet a portion or all a call not attributed to adverse market movements, the account will be restricted to cash on hand for a period of 90 days.
  3. Market appreciation

 

Portfolio Margin Minimum Equity Call: Incurred by having Portfolio margin account equity fall below $150,000 minimum.

 

Due Date: T+1

 

  1. Deposit of cash in the entire amount of the call
  2. Deposit of security(ies) equal to the entire amount of the call
  3. Market appreciation

 

Other info: PM accounts must always maintain an equity balance of $150,000 or else PM status will be removed. If PM status is removed, the account would have to wait for 90 days before restoring PM status and meeting the PM minimum equity.

 

Portfolio Margin Leverage Call: Incurred by the total market value of positions exceeding approved multiple.

 

Due Date: T+2

 

This call can be met by:

 

  1. Any combination of deposit, appreciation or liquidation which reduces the ratio of equity to a market value below your approved multiple


Other Info: Liquidation can only be used twice per 90-day period to meet this call. On the third instance of using liquidation to meet this call, the account will lose PM status.

 

Portfolio Margin Maintenance Regulatory Call: Incurred by Account equity being below regulatory maintenance requirement for open positions.

 

Due Date: T+1

 

This call can be met by:

 

  1. Deposit of cash in the entire amount of the call
  2. Liquidation – Liquidation to meet these calls can only be done twice per year unless the negative excess amount is attributed to adverse market movements. On the third instance of liquidating to meet a portion of, or all a call not attributed to adverse market movements, the account will be restricted to cash on hand for a period of 90 days.
  3. Market appreciation

 

Other Info: Deposits or liquidation amounts to meet calls must be increased if the account subsequently loses value. Strikes caused by liquidations out of PM house or regulatory calls will remain on the account for a period of 90 days.

 

Reg-T Fed (Initial) Call: Incurred by insufficient overnight buying power (ONBP) to satisfy the initial requirement on opening transactions held overnight. Under Federal Reserve Board Regulation-T, you can borrow up to 50 percent of the total purchase price of a stock for initial opening transactions.

 

Due Date: Reg T calls are due T+5

 

This call can be met by:


  1. Deposit of cash in the entire amount of the call
  2. Deposit of Margin eligible security(ies) valued at 1 1/3 the call amount
  3. Liquidation of Margin eligible securities valued at 2X the call amount

 

Please Note: Liquidation can be used to meet the call but can only be used twice during a rolling year to meet an Initial (Reg- T) call. In the 3rd instance, your account will be in restriction and limited to cash on hand for a period of 90 days.

 

Other Info: If the call is not met, positions will be liquidated to satisfy the initial call.


Video Tutorial

Margin requirements

This tutorial will discuss the two basic requirements when trading with a broker, account minimums and the margin required to maintain a position.


Margin trading glossary


Here are some terms you need to understand

 

 

Adverse market movements: Refers only to losses on positions held coming into the day in which there is no trading activity. If there is trading in any symbol, losses will not be considered due to adverse markets movements.

 

Day Trade Buying Power: The max market value of a position you are permitted to hold intraday is calculated as 4 times the maintenance excess, a $25,000 equity minimum threshold, and account approval is required. Day trade buying power is based on the maintenance requirement of the security being traded and varies by product type and price per share

 

Maintenance Excess: The total equity in the account minus the maintenance requirement to hold any overnight positions (buying power).

 

Margin interest: Margin interest is the amount charged based on the amount of money borrowed against your total equity. The interest rate is charged per day, annualized. View margin rates.

 

Mark to market: The fair value of each position in an account. Equity positions are marked to prior days’ closing price and options positions are marked to the midpoint of the bid/ask spread at prior days’ close. Your cost basis never changes, mark to market accounting allows a genuine representation of each position by calculating its true appreciation or depreciation day by day.

 

Maintenance Requirement: The minimum amount of equity that the firm requires to support the various types of positions held in the account. This applies to long and short positions

 

Overnight Buying Power: The max market value of a position you are permitted to hold overnight is calculated as 2 times the maintenance excess or SMA, the lesser of the 2

 

Portfolio Margin Excess: The total equity in the account minus the PM requirement to hold any overnight positions

 

Settlement Date: The date by which an executed security trade must be settled. That is, the date by which a buyer must pay for the securities delivered by the seller

 

Special Memorandum Account (SMA): The account where excess margin generated from a client’s margin account is deposited.

 

Trade Date: The day in which a trade is placed

 

Total Equity: The account value


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