Margin is generally used to leverage your cash and investments in order to increase your purchasing power. It allows you to borrow money from your broker in order to increase your buying power so that you can ultimately make larger trades than you would be able to in a cash account. There are special policies that may apply to your margin account. It’s important to keep these in mind and apply them to your situation accordingly.
Net liquidating value less than $2,000 to start the trading day
Accounts that start the day with less than $2,000 net liquidating value (NLV)—the account value if you were to liquidate all positions in your account—will be unable to place any new opening spreads or enact any trade in a symbol that increases existing margin requirements. E*TRADE will inform you if your account falls into this category and will make you aware that there is a restricted position. If any of the following happens, you will have, at most, three business days to eliminate the restriction:
- A deposit of funds or securities into your account brings the account value above the $2,000 requirement
- Market appreciation
- Liquidation of the offending position(s) when applicable. Keep in mind that the liquidation of the stock position requires more than the actual amount of the margin call. In most cases, this is about three or four times more than the margin call.
If action is not taken, E*TRADE will take market action on the day following the notice date to liquidate any and all restricted positions. Liquidations made will incur a $25 broker assist fee per liquidation, which is charged back to the account holder.
Margin equity less than $2,000 to start the trading day
If an account’s start of day margin equity—the amount of money (in securities or cash) that remains in your margin account after the money borrowed from your broker is subtracted—finishes below $2,000 at close of business the prior day , the following actions may occur:
- Account will be prohibited from selling to open (STO) equity orders
- Margin requirements will be raised to 100% of the position value for equities (both current positions and order vetting)
- Overnight (margin) buying power will be lowered from 2X to 1X
- Day trading buying power will be lowered from 4X to 1X
Some other things to keep in mind are:
- Short puts will be margined as cash secured (100% requirement) for margin accounts and not approved for uncovered options
- Calendar spreads and diagonal spreads are not allowed in cash-settled indexes (SPX, RUT, NDX, etc.)
- Spreads of any kind are not allowed in American-style cash-settled indexes (OEX)
Let E*TRADE help you with your margin trading needs. Open an account to start margin trading with E*TRADE today.