Margin Trading & Loans
When you trade on margin, you pay a portion of the cost required to buy securities and Scottrade loans you the remaining amount. An interest charge is applied to your account monthly based on the amount of funds you borrow.
Margin can be a low-cost, flexible way to seek increased investment returns or to meet your personal financial needs. Some of the primary benefits associated with margin loans include the seven things listed in this article.
While margin loans offer access to additional funds and the potential for increased investment returns, they're characterized by unique risks associated with market movement and your account activity. It's important to evaluate your risk tolerance carefully when determining whether margin fits into your financial strategy
Read this article to get four tips for managing margin risk according to your risk tolerance and financial strategy.
Learn how to open a margin account or add margin to an existing account. Plus, take a look at which accounts are eligible for margin and which aren't, and see how to determine whether or not a security is marginable.
As collateral on your margin loan, Scottrade requires you to keep a certain amount of equity readily available in your account. This amount is called the maintenance requirement. For most stocks, Scottrade's maintenance requirement is 30%, which means you need to have 30% of the current market value of the security you purchased on margin readily available in your account.
Although Scottrade's house maintenance requirement is typically 30%, we have higher requirements for certain stocks based on the stock's current trading price and volatility. We also enforce the Fed requirement, or the initial equity level required to enter into a trade.
An account with a large percentage of investments in a single asset class may be considered concentrated.
A margin call is a demand that an investor using margin deposit additional money or stock so the margin account is brought up to the minimum requirement. There are two main types of margin calls at Scottrade: Maintenance Calls and Fed Calls.
Day Trade Buying Power (DTBP) is the amount of money you have available in your account to place trades on a given trading day, and it only applies to margin accounts classified as Pattern Day Trading accounts with $25,000 or more in equity.
Leveraged ETFs mix equities with derivatives to magnify exposure to the benchmark index, and they have daily investment objectives. Leveraged ETFs are generally either two-times (2x) leveraged or three-times (3x) leveraged, meaning that while a regular ETF will attempt to match the benchmark index's performance 1:1, a leveraged ETF will usually match it 2:1 or 3:1.
Federal Reserve Regulation T, commonly called Reg T, governs how trades are paid for. Reg T violations can have serious consequences, so it's important to understand the rules before you trade.
Margin can be used to increase your buying power, provide fast access to cash for personal needs or to help you manage risk in your portfolio. Take a look at the ins and outs of each strategy.