Margin trading allows you to borrow against your existing holdings, leveraging them to take additional positions. MintBroker offers low margin rates based on each client’s margin balance. You can make a great deal of money trading on margin, but you can also lose through leverage*. That’s why it’s crucial to understand the benefits and risks of margin trading before using your margin trading account. It’s a powerful tool for traders when used responsibly.
Understanding Margin Trading
Trading on margin means taking out a “margin loan” against your holdings. Since the value of your holdings changes constantly, the amount you can borrow also fluctuates. If your portfolio rises, you can buy more stock. If it declines, your buying power declines. Another plus – trading on margin allows you to stick to a strategy if you require additional funds. Rather than selling stock if you need money immediately, or want to make other investments, margin trading lets you stay in the market with this leveraged money.
For example, with a typical margin agreement, you can borrow up to 50 percent of marginable stock. Borrowing that much money is usually not done, because margin trading involves risks. Using that amount as an example, if you want to purchase $100k of stock, the brokerage lends you $50k on margin to buy it. Should the stock grow to $125k and you sell, you’ve made a 50 percent ROI. If the stock falls to 75k, you’ve lost 50 percent – and you owe margin interest fees. Purchasing a winning stock on margin is a terrific investment. Purchasing a loser – not so much. With MintBroker, you can borrow up to 5 times your equity.
The Margin Call
The margin call is the risk side of trading on margin. While the term received its name because the broker would call the trader, today such notification occurs electronically. If your portfolio falls below a certain amount, known as the “maintenance margin,” the brokerage issues a margin call. That means you must add enough money to your account to meet the maintenance margin. Getting a margin call is one of those experiences you really want to avoid.
Day trading on margin or short selling may result in losses beyond your initial investment. When you day trade with funds borrowed from a firm or someone else, you can lose more than the funds you originally placed at risk. A decline in the value of the securities that are purchased may require you to provide additional funds to the firm to avoid the forced sale of those securities or other securities in your account. Short selling as part of your day-trading strategy also may lead to extraordinary losses, because you may have to purchase a stock at a very high price to cover a short position.
Your account or portions of it may be liquidated, and incur a $50 [Trade Desk + Margin Call] fee if:
- Your account is exceeding 5:1 margin during intra-day trading 2.30pm – 9.00pm BST (9:00am – 3:30pm EST)
- Your account is exceeding 2:1 margin beginning at 8.30pm BST (3:30pm EST.)
- If you are using margin on:
- Penny Stocks
- Pink Sheets
- Any stock below $3.00
- Trading a sub-penny stock.
- You are using leverage with equity of less than $500.
- Your equity is below $100 (will be liquidated in its entirety)
- Anytime your account margin is exceeding 5:1
If the equity in your account falls below the maintenance margin requirements. The firm can sell your securities or other assets without contacting you.
Short Locate Fee
A short locate is a request made by a client to their brokerage asking the firm to find a stock that is not readily available on their platform. If the stock is available for shorting the brokerage will apply the desired share amount to the client’s account on their behalf. There is a $25 locate fee for this service in addition to the price of the stock multiplied by the number of shares requested.
Example: Jane John requests a locate of the stock XYZ wanting to short 7000 shares. Once found, John is notified that the price of XYZ is currently $0.008. Fee Total: 7000 x $0.008 + $25 = $81
Overnight Short Charge
A trader can decide to hold his/her short sell position for as long as it takes for the investment to be profitable. However, with the decision to hold a short position overnight one must consider the fees that can incur. MintBroker charges 0.5% of the security based on the market closing price.
Trading Non-DTC Eligible Securities
Non-DTC eligible securities are securities that cannot be deposited electronically due to restrictions implemented by the Depository Trust & Clearing Corporation (DTC). The DTC provides electronic clearing and settlement for bonds, equities and other securities. The trading of non-DTC eligible stocks acquires heavy fees. With MintBroker additional settlement charges will be applied when trading such securities.
Overnight Margin Call
When trading with leverage the account is called a margin account. If your account goes below 50% of the amount an overnight margin call fee is issued. This margin fee is $25 plus a trade desk fee of $25.
Equity Margin Call
An equity margin call fee is charged to any account that goes over the 5 to 1 margin intra-day. Once this occurs the firm liquidates/sells a portion of your assets at $25 per symbol. There is also a trade desk fee of $25.
Holding Positions on Margin Overnight
If you choose to hold a position overnight using funds from your margin account it can be subjected to a 7.5% interest rate which is charged annually.
Leverage Account Minimum
You can only access buying power with MintBroker if your account is above $500 in equity.
If your account equity is below $100 your entire account will be liquidated/sold by the firm.
The $2.50 Rule
In order to trade a security below $2.50 you must have $2.50 per share in equity. That means if you want 2000 shares of a security that costs $1.50, you must have at least $5000 in your account.
MintBroker is a division of Mint Global Markets UK Ltd. an Appointed Representative of Thornbridge Investment Management LLP (FCA No. 713859) which is authorised and regulated by the Financial Conduct Authority. Mint Global Markets UK, Ltd. does not accept accounts for U.S. persons that have been solicited directly or indirectly.