Margin trading3 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.
Why E*TRADE for Margin Trading
Powerful tools for incisive decisions:
Tools like Margin Calculator, Requirement Lookup and Margin Analyzer help you strategize, plan and execute margin trades more efficiently and effectively.
Greater leverage with low maintenance requirements:
E*TRADE’s margin account maintenance requirement on most equity securities is just 25%, amongst the lowest in the industry.
Low interest rates:
Earn more of every dollar’s yield with rates as low as 3.89% on high margin balances. Different rates are applied based on a trader’s margin balance.
Debit cards and checks provide a convenient way to access excess cash or equity in your account as a line of credit.
Portfolio Margin capabilities:
Provide even lower requirements for those who want a higher degree of leverage4.
Margin loans carry risk.
When margin is used for trading, a margin loan also carries risk if the value of your investment drops significantly. The equity in your account should always be at least equal to your Account Maintenance Requirement. If it drops below that level, you may have a margin call; which will require you to make a deposit of cash or securities. Failure to meet a margin call can result in the sale of securities in your account without prior notice to you.
Understand the risks associated with margin.
- 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.
Margin Requirements and Account Maintenance Requirement
Industry rules require that investors have at least $2,000 (the minimum margin) in a margin account before purchasing stocks on margin, and that a minimum equity of 25% is maintained. This is the minimum mandated amount, and firms can and do impose higher requirements. E*TRADE’s house requirement of just 25% makes ours one of the lowest in the industry.
Each individual security carries its own requirement. (Volatility or a concentrated position could make any individual requirement higher than others.) The combined total of each individual requirement is added together and that sum is your Account Maintenance Requirement.
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 cash or securities.