To be eligible to take a margin loan, you need to have a minimum equity of $2,000 in your brokerage margin account and can usually borrow up to 50% of the value of eligible securities.
Not all securities can be used as collateral for a margin loan and need to be ‘marginable’. Each brokerage has its own terms for margin loans including the list of marginable securities, minimum equity requirement and the percentage of portfolio value you can borrow.
Learn more about eligibility for margin loans at M1.
Margin loans give you more flexibility in terms of repayment compared to some fixed term loans such as personal loans or mortgages. When you borrow on margin, you will be billed monthly interest until you pay back the loan amount. The billed interest amount can be paid each month, or it can simply be added to the loan amount. The loan amount (principal) can be paid back at any time if your account meets the margin requirements.
Learn more about Borrow billing at M1.
The Federal Reserve’s Regulation T requires an investor to pay for at least 50% of their marginable securities using their own cash. This is referred to as an initial margin requirement.
Let's say you want to buy 100 shares of Stock A priced at $50 per share and you have only $2500 and not the entire $5,000. With a 50% initial margin requirement, you can only borrow only up to $2,500 (50% of the total value) using margin and would have to pay the remaining 50% using your own cash. The borrowed amount as a percentage of the total investment value is called the initial margin. Your account equity in this example would be $2,500 ($5,000 investment value minus borrowed amount).
Once you purchase securities on margin, FINRA Rule 4210 requires an investor to maintain a minimum equity of 25% of the total value of securities1. This is referred to as a maintenance margin requirement.
Typically, when the market fluctuates and the value of your portfolio depreciates such that your equity drops below the maintenance margin requirement, a maintenance margin call will be triggered by your brokerage.
When there is a maintenance margin call, you will need to bring your equity back above the maintenance margin requirement by either depositing funds or selling securities.
While these are the minimum requirements mandated by the regulation, a brokerage could have higher minimum requirements to allow some fluctuations in portfolio value without triggering a maintenance margin call.
Learn more about what to do if a maintenance call happens in your account at M1.
*Requirements could vary for securities held short.
All investing involves risk, including the risk of losing the money you invest. Borrowing on margin can add to these risks, and you should learn more before borrowing. M1 Borrow available on margin accounts with at least $2,000 invested. Not available for all account types including retirement, custodial and some trust accounts. Margin rates subject to change.