<#-- Rebranding: Header Logo--> <#-- Rebranding: Footer Logo-->

Do I need to take out a loan on a margin account?

I have $90,000 and I want to trade on margin. Do I have to take out a loan to do this? Can I just make an account and just use my $90,000 to trade?

Sort By:
Most Helpful
last month

Here is how margin works.

If you deposit $90,000 in cash into a brokerage account, you create $180,000 in "buying power" -- that is, you can buy up to $180,000 in marginable securities.  (I would not advise maxing out the account like this, by the way.)  The brokerage firm will lend you the difference between the portfolio value and the equity in the account.  For example, suppose you buy $100,000 in marginable securities on the first day. The account will automatically go into debt of $10,000. You will pay interest on your debit balance for as long as it exists.  It can exist indefinitely, by the way.  Your debit balance will be increased by purchases and withdrawals, if any, plus the monthly interest charges; and reduced by sales, dividends and deposits.

If the value of your investments declines to the point where your loan is 65% of portfolio value, you will be forced to either deposit funds or sell securities (most likely at exactly the wrong time).  So be careful and don't get overextended.  I would not advise holding a debit balance of anything more than about 30% of portfolio value.  

last month