Limited Margin IRA

A Limited Margin IRA allows eligible IRAs to use unsettled proceeds to trade stocks and options actively, without triggering cash account trading restrictions such as good-faith violations. You will not be able to borrow funds, sell short a security, open a naked call option, or hold a short, assigned options position overnight. Please note that the information on this page is intended to provide information solely in connection with Limited Margin IRAs.

How can I apply for limited margin?

You can apply for limited margin in eligible IRAs by clicking on Account Preferences after logging on. In Account Preferences, scroll down to Additional Trading Features. Click the Upgrade link next to Limited Margin IRA. The only way to upgrade to a Limited Margin IRA is on the etrade.com website.

What are the requirements to open a Limited Margin IRA?

Limited Margin IRA functionality can only be added to existing IRAs that meet a $25,000 eligibility requirement.

I currently don't have an IRA at E*TRADE. How do I open a Limited Margin IRA?

If you open a new IRA with E*TRADE, your transfer or rollover from another firm must be completed before you can apply to enroll in a Limited Margin IRA. Additionally, your account will need to meet a $25,000 minimum account value requirement.

How can unsettled funds be used?

The unsettled funds can only be used for trading (including options, if account has options approval) and are not available for distribution (or withdrawal for overcontributions) until the settlement date.

Are there any limitations?

Yes. You will not be able to:

• Use margin
• Enter short sale orders
• Enter naked call option orders

Is it possible to be issued a call?

Yes. For example, if you cause a debit balance or have a negative purchasing power, you will be issued a call the next day. In addition, you can also be issued a day trade call if you qualify as a pattern day trader and exceed your intraday buying power.

How can I cause a debit balance in my IRA?

A Limited Margin IRA will not permit you to purchase securities without sufficient funds; however, in certain circumstances, you may cause a debit balance in your Limited Margin IRA (e.g., if you enter a market order that executes for greater dollar value of securities, you may end up buying shares for more than you expected—or if you held an option that was assigned or exercised).

What happens if I receive a margin call?

Margin calls are due the day they are first issued. You may be required to sell securities or deposit outside funds to satisfy a margin call. Day trading calls are due four days from when they are first issued, although your purchasing power may be affected the first day.

PLEASE NOTE: Additional fund deposits cannot exceed annual IRA contribution limits. Please note that if you incur a margin call that you are unable to satisfy, your account may be permanently restricted. 

What account types are eligible for limited margin?

Subject to other eligibility requirements, the following account types are eligible for limited margin:

• Traditional IRA
• Rollover IRA
• Roth IRA
• Simple IRA
• SEP IRA

Some other things to note which may make your IRA ineligible for limited margin. You cannot upgrade an IRA to limited margin if:

• Your IRA is linked to a futures account
• Your IRA participates in a managed portfolio
• Your IRA is for a minor
• Your IRA is a Roth IRA conversion

What will change in my account if I add limited margin? 

You will notice some changes in your account balances and the way they are displayed. These changes are made to show more specific details about your account.

For instance, you will notice some changes on the Complete View, Balance, and Trade Entry pages showing your purchasing power. Your purchasing power is the amount you have available for investment. It will no longer be identified as settled or unsettled. This will generally be the cash amount in your account less any options obligations.

You will no longer see two separate lines of Settled Cash Available for Investment and Unsettled Cash Available for Investment. Because limited margin allows the use of unsettled proceeds, you will see purchasing power and intraday purchasing power only if you are a pattern day trader. Because this is a retirement account, you will not be able to borrow funds and your securities will not provide excess purchasing power based on appreciation.

Are there additional possible trading restrictions in Limited Margin IRAs?

Because unsettled funds can be used, you will not be subject to 90-day restrictions (known in cash accounts as Good Faith Violations). A good faith violation occurs when you buy a security and sell it before paying for the initial purchase in full with settled funds. When an account is placed on a 90-day restriction, you must have full settled funds in your account prior to placing your trade.

However, you may be designated a pattern day trader, as described below in this article. Becoming a pattern day trader subjects you to certain requirements as well.  Your account may be restricted for any of the following reasons as well:

• Being charged a liquidation violation four times in a rolling 12-month period. A cash liquidation violation occurs when you buy securities and cover the cost of that purchase by selling other fully paid securities after the purchase date.
• If you are a pattern day trader and fail to meet a day trade call by the due date
• If you are a pattern day trader and your account value is below the $25,000 minimum

What options trading strategies are available in Limited Margin IRAs?

You will have the same range of options trading strategies available to you as you would in your IRA, depending on your options approval level. 

How to meet a call in a Limited Margin IRA? 

If your trading strategy creates a short position or debit balance in your IRA, these short positions or debit balances must be met immediately. If you are unable to do so, E*TRADE may be required to sell all or a portion of your assets without notice to you. This action may include closing positions in your account to meet the call. E*TRADE may sell any and all securities in your account at our discretion in such situations.

For example, if you cause a debit balance or have negative purchasing power, you will be issued a call the next day. In addition, you can also be issued a day trade call if you qualify as a pattern day trader and exceed your intraday buying power.

You should monitor your account balances and positions very closely and make sure that you react quickly to resolve your debit balance or negative purchasing power when your account is in a call.

If you receive a Fed call, you will receive an alert message to let you know. Please be aware, however, that you are responsible for monitoring your own account status.

There are two basic ways to meet a maintenance margin or Fed call:

1. Deposit additional funds. 

2. Liquidate securities.

If you are unable to deposit the required funds or do not wish to do so, you may liquidate enough shares in your account to bring the equity back to the minimum requirement. For Fed calls, if you incur four liquidation violations in a rolling 12-month period, a 90-day trading restriction may be placed on your account. (See "Additional notes specific to Fed calls" below.)

PLEASE NOTE: Additional fund deposits cannot exceed annual IRA contribution limits.

Additional notes specific to Fed calls

Meeting Fed calls by liquidating securities may cause a liquidation violation to occur on the account. Whether a liquidation violation has occurred is determined by E*TRADE, in a manner consistent with applicable securities regulations.

How do I qualify as a pattern day trader?

You can qualify as a pattern day trader if you execute four round-trip trades (opening and closing a trade within the same day) within five trading days in certain account types.

Will I have day trading buying power?

As opposed to the day trading purchasing power of a traditional margin account, which is four times your margin excess, Limited Margin IRA day trading purchasing power is limited to the free credit balance as a result of the inability to leverage cash or securities in a limited margin account.

Note: Intraday deposits will not be available in the day trading purchasing power until the following business day. Please note that you may still be issued a day trading call even without the availability of four times margin excess. For more information regarding pattern day trading, please click here. 

How can I be issued a day trade call?

You can be issued a day trade call if you exceed your intraday day trading purchasing power while opening a position that you close later in the day. E*TRADE does not normally allow this but, as noted above, if you enter a market order it is possible to purchase the securities for more than you expect.

PLEASE NOTE: Additional fund deposits cannot exceed annual IRA contribution limits.

Impact of day trading in a Limited Margin IRA

If you qualify as a pattern day trader under FINRA Rule 4210, it can affect you in several ways.

If you meet the definition of a pattern day trader, you will be required to maintain $25,000 equity in your brokerage account at all times. If your account equity falls below $25,000 a day trading minimum equity call will be issued on your account, requiring you to deposit additional funds or securities.

Your pattern day trading account will earn credit interest on the free credit balance.

The way your purchasing power is displayed will change.

Purchasing power: The amount available for you to purchase and sell stocks in a non-day trading account.

Intraday purchasing power: The amount available for you to purchase and sell stock in a day trading account.

The values above will be displayed on the Complete View, Balances, and Trade Entry pages.

Pattern day trading status applies only to customers with margin or Limited Margin IRAs. The day trading rules apply only to the buying and selling of the same stocks or options on the same trading day. They do not pertain to mutual fund or bond trades and are not applicable to positions held overnight or longer.

Understanding intraday purchasing power in a pattern day trader Limited Margin IRA

Intraday purchasing power for a pattern day trader in a Limited Margin IRA is more limited than in a margin account. In a Limited Margin IRA, your purchasing power is the lesser of current cash (less options requirements) and your start-of-day availability based on FINRA rules.

This will prevent you from exceeding your intraday purchasing power, as it is restricted from increasing based on the following:

• Using proceeds from the sale of overnight positions in some situations
• Using profits for day trading
• Using same-day deposits for day trading

Your intraday purchasing power may be restricted to only settled cash available if one of the following occurs:

• Your account value is less than $25,000 at the end of the previous business day
• You have been issued a day trade call

Example

A pattern day trading account begins the day with $1,500 and a position of ABC with a market value of $30,000 (1,000 shares priced at $30 per share).

If the account trades/sells 1,000 ABC @ $30 per share, proceeds are $30,000. The intraday purchasing power will increase by $22,500, as that is the maximum amount available based on FINRA rules. The intraday purchasing power will total $24,000. Please note that this example references a fully marginable security held at 25%.

What happens if my pattern day trader Limited Margin IRA falls below $25,000?

If your equity falls below $25,000 a day trading minimum equity call will be issued, requiring you to deposit additional cash or securities. Account equity is calculated based on the closing prices of securities on the previous market day.

Can I use my other accounts at Morgan Stanley as collateral for pattern day trading?

No. You cannot use your other accounts at Morgan Stanley as collateral for the purpose of meeting equity requirements for pattern day trading. Each day trading account must meet the applicable requirements independently, using the financial resources available in that account.

Bringing the equity in my account up to the minimum required for pattern day trading 

If you don't meet the minimum pattern day trading equity requirements, you can transfer cash and/or securities. Limited Margin IRAs may not be permitted to deposit funds if such deposits are in excess of annual contribution limits. 

Learn about day trading margin calls 

Under FINRA Rule 4210, if you exceed your day trading purchasing power, E*TRADE is required to issue a day trading margin call.

If you receive a day trading margin call, you will have up to four business days to deposit funds to meet the call. Please be aware that the only way to satisfy a day trading call is to deposit additional funds or securities. Limited Margin IRAs may not be permitted to deposit funds, if such deposits are in excess of annual contribution limits.

The day after you trigger a day trading margin call, you will not be able to increase your intraday purchasing power by selling positions purchased that day. This restriction will remain in effect for four business days or until the call is met, whichever is earlier. If the day trading margin call is not met by the fourth business day, your account will be further restricted to trading only on a cash-available basis for 90 days or until the call is met.

If you exceed your day trading purchasing power, you will be subject to a day trading margin call even if you have liquidated all your positions by the end of the day. 

Learn about day trade minimum equity calls

Pursuant to FINRA rules, E*TRADE is required to issue a day trading minimum equity call if the equity in your brokerage account falls below $25,000. If the equity in your account is below $25,000 and your account is either already qualified as a pattern day trading account, or four round-trip trades are executed in your account in a rolling five-trading-day period, your purchasing power will be reduced to settled cash. This restriction can be resolved at any time by meeting the $25,000 minimum equity call.

You can satisfy a day trading minimum equity call in one or more of the following ways:

• Deposit additional funds into your account
• Deposit additional securities into your account
• The account equity rises above $25,000 due to market appreciation

PLEASE NOTE: Additional fund deposits cannot exceed annual IRA contribution limits.

Learn the holding requirements for deposits made to meet a day trading margin call

Funds deposited to meet a day trading margin call must be held in your account for two days after the day the deposit has posted. If you deposit a check or make a transfer that requires time to clear your bank, the standard holding times for checks still apply. 

How do I remove limited margin from my account?

You can remove limited margin trading functionality from your account in one of the following ways:

• Call 800-387-2331 to speak with a Financial Service Representative
• Write us a letter and provide the following information:
  • Your account number
  • Your current trading level (for example, margin trading)
  • The trading level you want to change to (for example, cash account)

  Have all account holders sign the letter and send it to us:

  By regular US mail:
  E*TRADE from Morgan Stanley
  PO Box 484
  Jersey City, NJ 07303-0484
  
  By overnight mail:
  E*TRADE from Morgan Stanley
  Harborside 2
  200 Hudson Street, Suite 501
  Jersey City, NJ 07311

You will receive an alert message, letting you know that margin trading has been removed from your account. You will also notice that the term purchasing power no longer appears on your Balances page.