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. Margin isn't for everyone — it presents a host of unique risks including losing more than your original investment. However, it could potentially provide an effective way of working toward achieving your investment goals. 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.
- Enjoy a Flexible Repayment Schedule
There are no minimum monthly payments on a margin loan as long as you
maintain a required 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, or hedge against risk by selling a security you don't own and attempting to buy it back later at a lower price. (There are additional risks with selling short, such as being forced to buy a security in at any time.)
- Optimizing Your Buying Power
Retain more of your buying power by evaluating the maintenance requirements of securities before you make purchases.
Once you open a margin account, Scottrade offers access to your borrowed funds without additional credit checks. 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
You can borrow from your margin account to cover unexpected expenses or investments outside your brokerage account.
Borrowing funds may add additional volatility to your portfolio and could result in a margin call and the liquidation of securities held in your account.
|Loan Balance||Margin Rate||Interest Rate|
|$0.01 - $9,999.99||Base Rate + 1.25%||8.25%|
|$10,000.00 - $24,999.99||Base Rate + 1.00%||8.00%|
|$25,000.00 - $49,999.99||Base Rate + 0.75%||7.75%|
|$50,000.00 - $99,999.99||Base Rate + 0.25%||7.25%|
|$100,000.00 - $249,999.99||Base Rate – 0.25%||6.75%|
|$250,000.00 - $499,999.99||Base Rate – 0.50%||6.50%|
|$500,000.00 - $999,999.99||Base Rate – 1.00%||6.00%|
|$1,000,000.00+||Base Rate – 1.50%||5.50%|
Base Rate: 7.00% (as of 1/1/2017), subject to change without notice
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 marginable 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.