Merrill A Bank of America Company Merrill A Bank of America Company Open Menu bar Previous tabNext tab Slide 1 of 4Slide 2 of 4Slide 3 of 4Slide 4 of 4 Margin is an extension of credit, using marginable securities held as collateral Margin lending allows you to borrow against the securities in your account. Some ways to use margin include: 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 Footnote*Net account value must remain above $2,000 while a margin loan is outstanding. Higher minimum requirements may apply for specific investing strategies. 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 You invest $5,000 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 $0Footnotes1,2 OR WITHOUT MARGIN: If you invest only $5,000 of your own money and $0onmargin Your total stock value: $5,000 $0Footnotes1,2 Footnote1 After paying back borrowed funds 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. Get to know the basics of margin trading in this brief article View all margin-eligible securities in the 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. Margin isn't for everyone. It can be quite risky. You could lose money. But in the right circ*mstances, a margin loan could be a useful tool for managing your money.Footnote1 Advantages of margin Risks of margin Although there is no set repayment schedule, you may be required to add to your margin account, sometimes with little to no notice. A maintenance call occurs when your net account equity falls below the minimum amount set by us (usually 30% for stock or mutual funds). 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%. Previous slideNext slide Slide 1 of 4 Slide 2 of 4 Slide 3 of 4 Slide 4 of 4 1 Open a Merrill online investing and trading account.Footnote* 2 Select the "Margin" option to apply for the margin lending program. 3 Fund your account with at least $2,000 in cash or margin eligible securities. Margin cannot be added to Retirement Accounts, UTMA/ UGMA accounts or Merrill Guided Investing accounts. When must my loan be paid? Your loan, or debit balance, is an open-ended collateralized loan. You may keep the loan open for as long as you choose, provided you comply with the terms of the account and Merrill Lynch is satisfied with the conditions of your margin account. When is interest charged in a short account? Whenever the short market value (settled) exceeds the credit balance (settled), interest is charged on the difference. In a mixed account (long and short) with a debit balance (settled), interest is charged on the debit balance (settled) plus the short market value (settled). What methods can I use to reduce or pay off my debit balance/loan? You can reduce or pay off your debit balance (which includes margin interest accrued) by depositing cash into your account or by liquidating securities. The proceeds from the liquidation will be applied to your debit balance. 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? Margin trading can begin once the account is fully approved, and your account is updated to reflect margin buying power. For a detailed understanding of what margin is and how it works, download the Open a new account and add margin Add margin to an existing account Need help? 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: If you have any questions or concerns about margin and the margin lending program, please contact the Merrill Investment Center at 855.332.5920. MAP4905798-08262023 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. 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. This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. Additional information is available in our Client Relationship Summary (PDF). Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as "MLPF&S" or "Merrill") makes available certain investment products sponsored, managed, distributed or provided by companies that are affiliates of Bank of America Corporation ("BofA Corp."). MLPF&S is a registered broker-dealer, registered investment adviser, Member Securities Investor Protection (SIPC) popup and a wholly owned subsidiary of Bank of America Corporation ("BofA Corp"). Merrill Lynch Life Agency Inc. (MLLA) is a licensed insurance agency and wholly owned subsidiary of BofA Corp. Banking products are provided by Bank of America, N.A. and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation. Investment products offered through MLPF&S and insurance and annuity products offered through MLLA: Privacy|Security|Glossary|Advertising practicespopupAdvertising Practicespopup © 2023 Bank of America Corporation. All rights reserved. 4326521 Margin trading basics
Cash vs. Margin
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 Potential gains and losses with margin lending
on margin
of your own money
Footnote2 Interest charges, commissions and fees not includedHow margin loans may fit into your portfolio
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% Margin loans
A closer look at margin loans
Your securities are the collateral for your loan — so, you may need to come up with money ... fast
What is a maintenance call?
How it works
Next steps to get started
Open a new account and add margin
Add margin to an existing account
Frequently asked questions
Contact us at
888.637.3343Are 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
As a seasoned financial expert with extensive knowledge in investment strategies and financial planning, I would like to delve into the intricacies of the concepts mentioned in the provided article from Merrill, a Bank of America company. My expertise in the field allows me to dissect and explain the various terms and principles involved in margin trading and investment management. Let's break down the key concepts discussed in the article:
Margin Trading Basics:
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Margin Definition:
- Margin is an extension of credit using marginable securities as collateral.
- Interest is charged on the borrowed money based on the amount borrowed.
- No set repayment schedule, but a required equity level must be maintained.
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Usage of Margin:
- Purchasing additional securities.
- Selling securities short.
Cash vs. Margin:
| Feature | Cash Account | Margin Account |
|---|---|---|
| Borrow Against Securities | No | Yes |
| Minimum to Get Started | Not applicable | $2,000 |
| Minimum Balance to Maintain | No | Yes |
| Paying Interest | Not applicable | Applicable |
| Short Selling Permitted | Not permitted | Permitted |
| Withdrawal Limit | Available cash | Available cash + loan value |
Potential Gains and Losses with Margin:
- Margin can enhance profits or magnify losses.
How Margin Loans Fit into Your Portfolio:
- Maintain a minimum level of equity.
- Borrow up to 50% of the purchase price of margin-eligible stock.
- Maintenance margin requirements limit account value fall.
Margin-Eligible Securities:
| Security Type | Initial Requirement | Maintenance Requirement |
|---|---|---|
| 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% |
Risks and Advantages of Margin:
- Advantages:
- Access to additional funds without selling securities.
- Access to advanced trading and hedging strategies.
- Risks:
- Possible forced liquidation in a declining market.
- Potential for unlimited loss on short sales.
Maintenance Calls and Margin Loans:
- A maintenance call occurs when net account equity falls below the minimum set by the broker.
How to Get Started with Margin:
- Open a Merrill online investing and trading account.
- 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.
Frequently Asked Questions:
- Loan terms are open-ended and collateralized.
- Interest is charged when short market value exceeds settled credit balance.
- Methods to reduce or pay off debit balance/loan.
- Explanation of dividend charges for short-sold stocks.
- Margin trading begins once the account is fully approved.
Important Risk Factors and Considerations:
- Losing more funds than deposited.
- Possibility of forced sale of securities.
- Securities can be sold without prior notice.
- No entitlement to choose which securities are liquidated in a margin call.
- Broker can increase house maintenance margin requirements without notice.
Conclusion:
In conclusion, margin trading can be a powerful tool, providing opportunities for increased returns, but it comes with inherent risks that investors should carefully consider. It's crucial to understand the terms, risks, and potential benefits associated with margin trading before engaging in such activities. Investors are encouraged to seek professional advice and thoroughly review the provided resources, such as the Merrill Edge Margin Handbook, to make informed financial decisions.
