Margin Trading: Understanding How To Invest on Margin

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Margin trading basics

Margin is an extension of credit, using marginable securities held as collateral

Interest is charged on the money you borrow and based on the amount you borrow
There is no set repayment schedule, but you must maintain a required equity level in your account
You can repay the loan at any time for depositing cash or selling securities

Margin lending allows you to borrow against the securities in your account. Some ways to use margin include:

Purchasing additional securities
Selling securities short

Take an interactive tour of how margin works

Cash vs. Margin

What factors might you consider when deciding if margin is for you? We've summarized a few in this table, and you can find more details in the Merrill Edge Margin Handbook (PDF)

	Cash account	Margin account
Can I borrow using the securities I own in my account?	No	Yes
How much do I need to get started with margin?	Not applicable	$2,000
Is there a minimum balance to maintain?	No	YesFootnote *
Do I have to pay interest?	Not applicable	Applicable
May I use the account for short selling?	Not permitted	Permitted
How much am I able to withdraw?	Available cash	Available cash + available loan value

Footnote *Net account value must remain above $2,000 while a margin loan is outstanding. Higher minimum requirements may apply for specific investing strategies.

Potential gains and losses with margin lending

Margin can potentially enhance your profits — or it can magnify your losses. Observe this in action with our interactive margin illustrator. In this example, start out with a $50 stock and see what could happen as stock prices change.

You purchase 200 shares of a $50 stock for a total investment of $10,000

You borrow $5,000
on margin

You invest $5,000
of your own money

Current market value:

Click here to add five dollars –

200 SHARES OF A

$50

STOCK

Click here to subtract five dollars +

Your total stock value: $10,000

PROFIT/LOSS

$0Footnotes ^1,2

OR WITHOUT MARGIN:

If you invest only $5,000 of your own money and $0 on margin

Your total stock value: $5,000

$0Footnotes ^1,2

Footnote ¹ After paying back borrowed funds
Footnote ² Interest charges, commissions and fees not included

How margin loans may fit into your portfolio

Margin is a way to access the loan value of your securities for many purposes, including to purchase other securities. Let's review how this works.

You are required to maintain a minimum level of equity in your margin account.

Initially, $2,000 through deposit of cash or marginable securities
In general, based on Regulation T, you can borrow up to 50% of the purchase price of margin-eligible stock.
After initial purchase, maintenance margin requirements limit how far the account value can fall, in relation to the margin loan, before additional deposits or liquidating securities are required.

Investing in the Margins

Get to know the basics of margin trading in this brief article

Securities eligible for margin	Position Initial (Reg T) requirement	Maintenance requirement (at least)
U.S. listed common stock	50%	30%
Mutual Funds	100%	30%
U.S. Treasury Notes/Bills	5%	5%
Municipal Bonds	20%	15%
Corporate/Non-convertible Bonds	30%	30%
Exchange Traded Funds	50%	30%

View all margin-eligible securities in the margin handbook (PDF).

Margin loans

Margin loans are secured against the holdings in your account. No matter what you use the loan for, there are several factors that need to be considered.

If the equity in your margin account decreases, you may be required to immediately deposit cash or sell securities to cover a margin call or maintenance requirement.
Margin loans can be indefinite and costly over time
You may be able to borrow elsewhere at a lower rate with fixed payments

A closer look at margin loans

Margin isn't for everyone. It can be quite risky. You could lose money. But in the right circumstances, a margin loan could be a useful tool for managing your money.Footnote ¹

Advantages of margin

Access to additional funds without selling your securities
Access to advanced trading and hedging strategiesFootnote ²
Immediate access to funds
Flexible repayment terms

Risks of margin

Possible forced liquidation of securities in a declining market
Less time to correct course after sudden price movements
You can lose more money than you initially deposited
Unlimited loss potential on short sales

Your securities are the collateral for your loan — so, you may need to come up with money ... fast

Although there is no set repayment schedule, you may be required to add to your margin account, sometimes with little to no notice.

What is a maintenance call?

A maintenance call occurs when your net account equity falls below the minimum amount set by us (usually 30% for stock or mutual funds).

How it works

Suppose your account holds $25,000 of marginable stock and a $14,000 margin loan. Your net account equity would be $11,000, or 44%.

Then the value of your stock falls to $19,000.

This would cause the net account equity to fall below 30% to 26%, resulting in a maintenance call of $700

You will then be required to deposit cash equal to $700 to cover the maintenance call and raise equity to at least 30%.

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Next steps to get started

Open a new account and add margin

Open a Merrill online investing and trading account.Footnote *

Select the "Margin" option to apply for the margin lending program.

Fund your account with at least $2,000 in cash or margin eligible securities.

Open an account

Add margin to an existing account

Margin cannot be added to Retirement Accounts, UTMA/ UGMA accounts or Merrill Guided Investing accounts.

Apply online

Frequently asked questions

When must my loan be paid?

When is interest charged in a short account?

What methods can I use to reduce or pay off my debit balance/loan?

I sold a stock short, and now I'm being charged whenever the company pays a dividend. Why is that?

The shorted stock was borrowed in order to be sold in the open market, so the dividends are being paid to the current holder who purchased the shares. Since the dividend income is being paid to the new holder, the short seller has the obligation to make up that lost revenue that is also due to the original owner. A short seller is obligated to cover dividends and any corporate reorganizations that occur in the shorted security.

When can I begin to trade using margin?

Review current margin rates

For a detailed understanding of what margin is and how it works, download the Merrill Edge Margin Handbook (PDF).

Open a new account and add margin

Open an account

Add margin to an existing account

Apply online

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Contact us at
888.637.3343

Options involve risk and are not suitable for all investors. Certain requirements must be met to trade options. Before engaging in the purchase or sale of options, investors should understand the nature of and extent of their rights and obligations and be aware of the risks involved in investing with options. Prior to buying or selling an option, clients must receive the options disclosure document "Characteristics and Risks of Standardized Options." Call the Investment Center at 1.877.653.4732 for a copy. A separate client agreement is needed.

When you purchase securities, you may pay for the securities in full, or if your account has been established as a margin account with the margin lending program, you may borrow part of the purchase price from Merrill. If you choose to borrow funds for your purchase, Merrill's collateral for the loan will be the securities purchased, other assets in your margin account, and your assets in any other accounts at Merrill. If the securities in your margin account decline in value, so does the value of the collateral supporting your loan, and, as a result, we can take action, such as to issue a margin call and/or sell securities in any of your accounts held with us, in order to maintain the required equity in your account. If your account has a Visa^® card and/or checks, you may also create a margin debit if your withdrawals (by Visa card, checks, preauthorized debits, FTS or other transfers) exceed the sum of any available free credit balances plus available money account balances (such as bank deposit balances or money market funds). Please refer to your account documents for more information.

Before opening a margin account, you should carefully review the terms governing margin loans. For Individual Investor Accounts, these terms are contained in the Margin Lending Program Client Agreement. For all other accounts, the terms are in your account agreement and disclosures. It is important that you fully understand the risks involved in using margin. These risks include the following:

You can lose more funds than you deposit in the margin account. A decline in the value of securities that are bought on margin may require you to provide additional funds to us to avoid the forced sale of those securities or other securities in your account(s).
We can force the sale of securities in your account(s). If the equity in your account falls below the maintenance margin requirements or Merrill's higher "house" requirements, we can sell the securities in any of your accounts held by us to cover the margin deficiency. You also will be responsible for any shortfall in the account after such as sale.
We can sell your securities without contacting you. Some investors mistakenly believe that they must be contacted for a margin call to be valid, and that securities in their accounts cannot be liquidated to meet the call unless they are contacted first. This is not the case. We will attempt to notify you of margin calls, but we are not required to do so. Even if we have contacted you and provided a specific date by which you can meet a margin call, we can still take necessary steps to protect our financial interests, including immediately selling the securities without notice to you.
You are not entitled to choose which securities in your account(s) are liquidated or sold to meet a margin call. Because the securities are collateral for the margin loan, we have the right to decide which security to sell in order to protect our interests.
We can increase our "house" maintenance margin requirements at any time including on specific securities experiencing significant volatility and are not required to provide you advance written notice. These changes in our policy may take effect immediately and may result in the issuance of a maintenance margin call. Your failure to satisfy the call may cause us to liquidate or sell securities in your account(s).
You are not entitled to an extension of time on a margin call. While an extension of time to meet margin requirements may be available to you under certain conditions, you don't have a right to the extension.

If you have any questions or concerns about margin and the margin lending program, please contact the Merrill Investment Center at 855.332.5920.

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Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

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Investment products offered through MLPF&S and insurance and annuity products offered through MLLA:

Are Not FDIC Insured

Are Not Bank Guaranteed

May Lose Value

Are Not Deposits

Are Not Insured by Any Federal Government Agency

Are Not a Condition to Any Banking Service or Activity

Investing in securities involves risks, and there is always the potential of losing money when you invest in securities.

Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.

The performance data contained herein represents past performance which does not guarantee future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. For performance information current to the most recent month end, please contact us.

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