Margin can be used to increase your market exposure or provide fast access to cash for your personal needs.
Margin loans can be a low-cost, flexible way to borrow funds for your trading or financial strategy. While margin isn’t for everyone and presents unique risks, it can potentially provide an effective way of working toward your strategies. When used responsibly, margin offers several benefits, such as the abilities to:
- Increase Your Buying Power
Margin trading allows you to leverage the assets in your account to purchase more
securities than you would be able to buy on a cash-only basis.
- Take Advantage of Competitive Interest Rates
Margin loans can be more cost effective than credit cards or other lending options.
If you decide margin is right for you, Scottrade offers competitive interest rates based
on the amount you borrow.
- Use an Accessible Line of Credit
You can borrow on margin to meet your personal financial needs whenever you want
without extra paperwork, credit checks or approvals.
- Enjoy a Flexible Repayment Schedule
There are no minimum monthly payments on a margin loan as long as you maintain
a certain equity level in your account.
Because trading with borrowed funds allows you to increase your market exposure, there is a potential for increased gains as well as increased losses.
Four Ways to Use Leverage
- Bullish Strategy: Buying on Margin
Amplify your exposure to a particular sector or stock, or take greater advantage of upswings that result from anticipated news, earnings announcements
and other market events.
- Bearish Strategy: Short Selling
Take advantage of the downside of the market and hedge against risk by selling a security you don’t own and attempting to buy it back later at a lower price.
- Optimizing Your Buying Power
Retain more of your buying power by evaluating the maintenance requirements of securities before you make purchases.
- Maximizing Your Buying Power
Become fully exposed to the market by applying all your borrowed funds toward purchases. This is the riskiest way to use leverage, so it’s important to
carefully evaluate your risk tolerance before attempting to maximize your buying power.
Once you open a margin account, Scottrade offers immediate access to your borrowed funds without extra paperwork, credit checks or approvals. In addition to being easy to access, margin loans can have lower interest rates than other loan types to help you meet your personal financial goals at a lower cost.
Ways to Use Margin Loans
- Making Purchases
Instead of closing positions to access cash, margin loans offer you a way to maintain your market exposure and still withdraw funds that can be applied to
material purchases, bills or other expenses.
- For Outside Investments
Similar to a home equity line of credit, you can borrow from your margin account to cover unexpected expenses, real-estate investments, home improvements
or similar investments outside your brokerage account.
Margin can be used to help manage risk either through employing hedging strategies or just generally increasing the overall diversification of your portfolio.
One way to hedge is by selling short. By using a short position to hedge against a long position, you’re attempting to manage the risk associated with the
underlying security and prepare for a market shift in either direction. A margin account is required for short selling.
- Increasing Overall Diversification
Margin can provide additional funds to help you purchase multiple securities with low correlations to one another thereby helping to ensure that your portfolio
isn’t entirely dependent upon one sector, industry or stock.
Keep in mind that while diversification may help spread risk it does not assure a profit, or protect against loss, in a down market.
Our margin rates will be set in reference to commercially recognized interest rates, industry conditions relating to the extension of margin credit, and general market conditions.
Understanding Margin Maintenance & Risks
An initial deposit of $2,000 is required to request margin privileges. Once a loan is extended, you’re required to keep a minimum equity level, called the maintenance requirement, in your account if you’re trading on margin or using margin loan privileges.
Before you decide whether margin is right for you, it’s important to carefully consider the risks associated with margin loans, and evaluate your risk tolerance and financial situation. Some of the primary margin risks include:
- Amplified Losses
Margin offers you a way to increase your market exposure. The downside to greater market exposure is that a decrease in your investments can amplify your
losses. It’s possible to lose more funds than you deposit in a margin account and, if that occurs, you’ll still be responsible for paying back your loan with interest.
Keep in mind interest rates may fluctuate during the time your loan is outstanding.
- Margin Calls
Scottrade requires you to keep a minimum equity level in your account at all times. If you fall below the minimum maintenance requirement, Scottrade will issue
a margin call that requires you to deposit cash or new securities immediately. We reserve the right to change the minimum equity level at any time without notice.
- Forced Liquidation
If you’re unable to meet a margin call, Scottrade may need to sell some or all of your securities to bring your account back up to the minimum equity requirement.
We reserve the right to sell any securities or other assets you hold at Scottrade with or without your approval, and we reserve the right to choose which securities
are liquidated to protect our loan. While Scottrade’s practice is to attempt to contact you, there may be some instances where we will have to liquidate your
securities without notice.
- Interest Rates
Margin account owners are responsible for meeting the interest charges they accrue on any borrowed funds.