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What is a margin account? [Top]
A margin account allows you to borrow against the marginable securities held in your account. This will increase your exposure to risk because a percentage of the account is funded by borrowed money. If the value of the securities change, the equity changes dollar for dollar, but the principle amount of the loan stays the same. If the equity should fall below margin maintenance equity requirements the account is in a margin call and securities will have to be closed out to cover the loan or call, possibly at a loss, unless the call can be met by a deposit of additional cash or marginable securities.
Another way to look at it: in a checking account with a credit line, the customer either has money (a credit balance) or owes money (a debit balance). The credit balance may be paid interest and the debit balance may be charged interest. The security for a margin loan is the positions in the account. Similarly, a mortgage loan is secured by the real estate collateralizing the loan. If the value of the underlying collateral decreases below the loan amount, the loan can no longer be repaid by selling the collateral, or the loan is unsecured, and the equity has went negative. Unsecured debits or loans are still a liability to the borrower. A word of caution, the value of certain stocks can change very quickly and margin accounts on leverage have risk directly related to the volatility of the underlying investments and surrounding market conditions.
Why use a margin account? [Top]
A margin loan can be used to make a purchase like buying a car or a down payment on a house or paying off higher interest rate credit cards. A margin account can be used to increase the account’s buying power for investments. As long as the investments made on margin have a higher return than the interest charged to the account each month, the account will have a larger return on equity. A margin customer has the freedom to move funds in and out as often as needed, the loan is not structured like an installment loan. If the rules of the margin account are followed or the firm does not call the loan, the loan could last indefinitely. If the loan is called, the call must be paid or securities will be closed until the account is out of a call.
How will I know if my account has a margin call? [Top]
You should be able to calculate your account and understand if it is, or will be in a call. MAXXtrade, Inc. may attempt to contact you by Internet, telephone, the postal service, or email. If we feel it is necessary to send an overnight margin call letter, a $20 overnight fee will be charged to the account. If you have a preference of how to be notified, please let us know.
What should I do if I have a margin call? [Top]
Contact MAXXtrade, Inc. as soon as possible. Please note all margin calls are due immediately. Certain types of calls can be allowed more time than others depending on the circumstances and what created the call. Our firm will try to work with a client about meeting a call wherever we can when special situations arise, genuine effort to communicate with us will help. Certain market conditions or account specific risk sometimes require brokerage firms to take protective action by closing positions at any time. Please understand that a wire of funds may be required to meet a call.
Wire Instructions
How can I tell whether a stock is marginable or not? [Top]
The Federal Reserve determines whether a stock is marginable or not. The NASD also sets margin rules. Brokerage firms are allowed to set their own margin requirements as long as they are more restrictive than the Fed or the exchange requirements. Here are some guidelines to help you.
- No Over-The-Counter Bulletin Board (OTC-BB) stock is marginable. MAXXtrade, Inc. will not allow positions that are not marginable to be used as collateral for new margin purchases.
- No option is marginable.
- No bond rated below Baa is marginable.
- While no stock under $5 is marginable under MAXXtrade, Inc.'s guidelines, it does not necessarily mean stocks above $5 are.
How do I know if I have a margin loan? [Top]
If your net cash position is a credit balance, and no short positions are in the account, then you have money that is yours. This shows as a positive number on the Account section of the Internet platform. Currently, this credit balance money will earn interest at MAXXTrade. If you see a negative number on the Internet Account screen, then you have a debit balance, and will be charged interest if it is in a "settled" debit balance. FYI, regular way stock trades take 3 business days to settle.
What are the current rates charged on margin loans? [Top]
MAXXtrade, Inc. charges interest on any money loaned to you.Contact us for rates. These rates can change without notice.
How do I apply for a margin account? [Top]
To apply for a margin account please request a form on the Open our account page. You must complete, sign and mail to 009900.com the New Account form. Margin accounts require minimum equity of $5,000.00. IRA's and Custodial Accounts are not permitted to trade on margin. These types of accounts can only be cash accounts.
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