Margin Trading at E*TRADE
Increase Your Buying Power
If used correctly, trading on margin offers a number of potential advantages2, including:
- Cost of Funds: Borrow up to 50% of the value of securities purchased at competitive rates.
- Increased Buying Power: Control a larger trading position with up to 4x intra-day leverage.
- More Flexibility: Diversify3 your portfolio, hedge positions or profit from market declines.
Portfolio Margin: Lower requirements and more leverage4
Margin trading involves borrowing against securities you already own to purchase additional securities. The following example shows how the same trade works in a cash account vs. margin account.
Margin Account - Gain
If an investor buys stock for $50 a share, he or she pays $25 per share (the initial margin) and borrows $25. If the stock rises to $60, the profit is still $10 - but it's a 40% gain on the initial investment. Of course, the borrowed $25 per share, plus interest, needs to be repaid.
Industry rules require that investors have at least $2,000 (the minimum margin) in a margin account before purchasing stocks.
Once shares are purchased on margin, the value of the account must not fall below the maintenance margin.The maintenance margin is 25% of the total market value of the stocks in the account. However, firms can set their own house requirement which may differ from the maintenance margin.
Currently, the house requirement at E*TRADE is 25%. For certain volatile stocks and concentrated positions the house requirement may be higher.
If the equity in the margin account falls below the house requirement of 25%, E*TRADE will issue a margin call requiring you to deposit more cash. If the margin call is not met in a timely fashion, the firm may liquidate the position or any security in your account without your permission.
Investing on margin is investing with borrowed money.
You are responsible for repaying the loan plus interest.
The firm can increase its house maintenance margin requirements at any time and is not required to provide you with advance written notice.
You are not entitled to an extension of time on a margin call.
It's possible to lose more money than you deposited in the account.