What Every Trader Should Know About Margin
Margin can be a powerful tool to leverage your investment returns or to finance purchases apart from your portfolio.
Margin is an extension of credit from a brokerage firm using your own eligible securities as collateral. Most traders typically use margin as a means to purchase additional securities, but there are other uses too. Interest is charged on the borrowed funds for the period of time that the loan is outstanding.
Benefits of a Margin Trading Account:
Use the cash or securities in your account as leverage to increase your buying power.
Get the lowest market margin loan interest rates of any broker.
Diversify trading strategies with short selling, options and futures contracts, or currency trading.
Borrow against a margin account at any time and repay the loan on your own schedule.
Margin borrowing is only for experienced investors with high risk tolerance. You may lose more than your initial investment.
Before trading on margin, understand the following risks:
Trading losses may be greater than the value of the initial investment
Leveraged investments create a greater potential risk of loss
Additional costs from margin interest charges
Potential margin calls or liquidation of securities
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