7 Benefits of Margin Loans
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:
- Increased Buying Power – Trading on margin allows you to purchase a greater number of securities than you would have been able to purchase with cash only, thereby giving you more exposure to the market and offering the possibility of greater returns. Having a margin account also allows you to sell short and attempt to profit from downward price movements.
- Competitive Interest Rates – Margin loans can be more cost-effective than credit cards or other lending options. Scottrade offers competitive margin loan interest rates based on the amount you borrow.
- Repayment Flexibility – There are no minimum monthly payments on a margin loan as long as you maintain the required account equity level. Each security may be subject to a different maintenance requirement, so please use our margin requirement table to determine the equity levels required for your positions.
- An Accessible Line of Credit – Once you're approved for a margin account, you can borrow against your assets, in the form of a margin loan, to meet your personal financial needs. There's no extra paperwork, credit checks or permissions required to access the borrowed funds after your initial approval.
- Increased Ability to Stay in the Market – A margin loan can help you stick to your trading strategy by offering additional funds. Rather than selling securities for immediate income and decreasing your exposure to the market, margin offers you a way to stay invested and defer capital gains until you're ready to close a position.
- Tax Deductions– In some cases, the interest on a margin loan may be tax deductible. Consult your tax professional for more information.
- Portfolio Diversification – By increasing your buying power, trading on margin allows you to diversify a heavily concentrated portfolio composed of only one security or several very similar securities.
Despite the benefits offered by margin loans, it's important to evaluate your risk tolerance carefully when determining whether margin fits into your financial strategy. Read Primary Margin Risks to learn more about the risks associated with margin loans.
Keep in mind that while diversification may help spread risk it does not assure a profit, or protect against loss, in a down market