Benefits and risks of a Margin Loan

Some of the benefits of Margin Loans:

Increase your buying power

Leverage your investments to purchase more securities than would be possible by using only the cash you have on hand. Investing using a Margin Loan is also helpful when there are investment opportunities that require a bit more cash than you have in your M1 Individual/Joint Brokerage or Trust Account. 

Stay invested even when you need liquidity 

Margin Loans offer a flexible line of credit backed by your investments helping you avoid selling your investments to meet other liquidity needs.  

Tax benefits 

Opting for a Margin Loan to address liquidity needs also helps avoid capital gains taxes on gains from selling securities. In most cases, the interest expenses can also be deducted from your investment income for tax purposes. 

M1 and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. 

Flexible repayment

There is no set repayment schedule if you maintain the required minimum equity.  

Quick access to credit 

You can use your line of credit at any time and for any minimum amount. Once you have a margin account (Individual/Joint Brokerage or Trust) opened, there is no additional application process or credit checks to take an M1 Margin Loan. 

 

Some of the risks associated with Margin Loans:

Market volatility 

When the value of your portfolio drops, the value of the securities acting as collateral for your Margin Loan also drop. If this drop is significant enough, it may require you to meet a maintenance margin call or pay back your brokerage entirely. 

Leverage risk 

Investing using a Margin Loan can amplify losses as well as gains. Regardless of the value of your investments, you must repay your Margin Loan. 

Maintenance Margin Calls 

If the equity in your account falls below the minimum maintenance requirement, you will have to bring your equity back above the maintenance margin requirement by either depositing funds or selling securities. The minimum maintenance requirement could also change at any time. 

Forced Liquidation 

If you fail to meet a maintenance margin call, your brokerage may be forced to sell some or all your investments. 

Increased interest rates 

Interest rates on Margin Loans are linked to the federal funds' interest rate and could increase while you have a Margin Loan, increasing your cost. 

 

Brokerage accounts on the M1 platform are either fully disclosed to APEX Clearing or cleared through M1 Finance LLC. Please look at your account statement to determine how your account is cleared.

All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future performance. Using margin can add to these risks. Users utilizing APEX cleared margin accounts should review the APEX margin account risk disclosure before borrowing. Users utilizing M1 cleared margin accounts should review the M1 margin account risk disclosure before borrowing. M1 Margin Loans are available on margin accounts with at least $2,000 invested per account. Not available for Retirement or Custodial accounts. Margin rates may vary.

Brokerage products and services are offered by M1 Finance LLC, Member FINRA / SIPC, and a wholly owned subsidiary of M1 Holdings, Inc.

 

M1 disclosures here.

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