Margin FAQs



  • What is a margin account?

    A margin account allows an investor to borrow money from TradeKing using other securities currently held in the account, such as cash or stock, as collateral. Funds may be borrowed to make additional trades or they may simply be withdrawn from the account as cash. As with any loan, interest will be charged on any borrowed funds. You can find our current Margin Interest Rates here.


    Industry regulations require that all margin accounts maintain a minimum of $2,000 in equity at all times. If this minimum is not maintained, borrowing on margin will no longer be available to the account.


    Finally, there are some risks to using margin. Although it's nice to have the ability to borrow money, allowing you to potentially trade more shares of stock and thus achieve larger profits, choosing to trade on margin also opens yourself up to the negative possibility of incurring larger losses which could potentially exceed your initial investment. If you would like to learn more about trading on margin, please read the strategy Long Common Stock on Margin

  • What is Portfolio margining?

    "Portfolio margining" is a new set of margin rules established as an extension to existing margin requirements. Both the NYSE and the CBOE initiated amendments to existing margin rules to expand the scope of a portfolio margin methodology for listed, broad-based market index options, index warrants and related exchange-traded funds. The amendments are now part of a pilot program being executed that allows approved brokerage firms and clearing members to extend additional margin leverage to eligible customers.
     
    Portfolio margining can be a more efficient margin treatment for option strategies based on the daily net risks of the eligible instruments in a client's account. The new SEC margin rules can have the effect of lowering margin requirements substantially, including account capital requirements, and therefore create greater leverage for investors.
     
    The new portfolio margining rules have the effect of aligning the amount of margin money required to be held in a customer's account to the risk of the portfolio as a whole, calculated through simulating market moves up and down, and accounting for offsets between and among all products held in the account that are highly correlated (for example, options on the S&P 500 Index (SPX), can be offset against options on the S&P 500 depositary receipts (SPY), or options on diamonds (DIA) can be offset against SPX options).
     
    The longstanding practice for professionals to utilize strategy-based margins is to require margin based on set formulas for various strategies (i.e., some spread strategies require a certain minimum margin), regardless of what other offsetting positions were held in the account and regardless of potential market moves. For some positions the margin requirements may not change significantly, but for other positions, such as owning a protective put against a long stock position, the difference may be sizable. This is appropriate in that the margin calculation accounts for the fact that the risk of one position (long stock) is offset by the other (long put).
     
    In general, option traders can "free up" a significant amount of equity in our portfolio margining accounts and enhance leverage by better management of credit and risk.
  • Will TradeKing offer portfolio margining?

    TradeKing will offer portfolio margining to eligible customers in the near future. We will be analyzing the results of the pilot program and customer demand to determine the roll out for this product.
  • What is my buying power?

    If you have a margin account with $2,000 or more of equity in it, you can borrow money from TradeKing to make additional investments. Interest (calculated daily, debited monthly) is charged when securities are bought using margin.
     
    The buying power field in the balances screen shows the total value of marginable securities that you can buy using your own money and the money you can borrow from TradeKing, given the equity you have in your account. This client, for example, just deposited $10,000 in her account:
    She can buy marginable stock worth $20,000, options worth $10,000, or she can simply withdraw the $10,000 she just deposited. Because she has not borrowed any money from TradeKing, she has full 100% equity in her account. Not all securities are marginable: options and penny stock - for example - are not marginable securities. You can use any extra cash generated by your buying power to buy options and penny stock. But any option or penny stock in your account will not increase your buying power as they cannot be used as collateral for borrowed money.
     
    When you buy marginable securities, TradeKing can generally lend you as much money as you deposited in the account, or half the market value of marginable securities that you have in your account. This way, 50% of the value of the securities you buy will be bought using money that you borrowed from TradeKing.
     
    If the value of any investment bought with borrowed money ("on margin") decreases, your equity will also decrease. TradeKing will generally allow your equity to go as low as 30% before it will require you to deposit more funds.
     
    To check current margin requirements and current Interest rates, click here.
     

    Day trade buying power

    If you engage in day trading (if you execute four or more stock or options day-trades within a five-day period in a margin account), requirements and buying power calculations are different and a little more complicated. Here is where you can learn all the rules related to day trading: Click Here.
  • Will I receive interest on cash from short selling?

    No. Short selling stock involves selling securities that you have borrowed. Cash generated from short selling is reserved in your account for the future re-purchase of the stock that was sold short. This is not a free cash credit and therefore not eligible to earn interest. The amount of cash held for the repurchase of short stock will be adjusted (marked to the market) weekly.