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Investing on margin

When you invest on margin, you borrow either cash or securities from your broker to complete investment transactions.

What's required for margin accounts

You're usually required to come up with just a percentage of the amount needed for a securities purchase or short sale while paying interest to finance the rest based on an approved line of credit.

This allows you to increase your "buying power"—the amount of money available in your account to purchase marginable securities. For example, if you have $50,000 in your money market settlement fund, your buying power is actually $100,000, because you're required to deposit just 50% when buying or selling short* most marginable securities.

To keep your line of credit open, you must maintain a certain amount of equity—the current value of your assets less the amount of the margin loan—in your account at all times. Margin trading can increase your return on an investment, but there's also the potential for significant loss. At Vanguard Brokerage, margin investing is allowed only with our prior approval for nonretirement brokerage accounts. It's not permitted for retirement accounts, UGMA/UTMA accounts, and certain other types of accounts.

Once approved, you can trade most eligible securities on margin, including:

  • Exchange-listed securities (excluding Vanguard ETFs®).
  • Over-the-counter (OTC) securities traded through Nasdaq or the National Market System.
  • OTC securities approved by the Federal Reserve Board.
  • Government, municipal, and corporate bonds.

Vanguard Brokerage margin rate interest schedule

When funds are borrowed in a margin account, interest will be calculated on a daily basis and charged based on the total debit (borrowed) balance. Interest charges on margin transactions involving borrowed funds will start to accrue on the settlement date and will post to your account around the end of each month. As of December 1, 2012, the Vanguard Brokerage base lending rate is 6.5%. The effective rate, or true interest rate, is the base lending rate plus the interest rate.


LOAN BALANCE

Up to $19,999

INTEREST RATE

1.25%

EFFECTIVE RATE (INTEREST RATE PLUS 6.5% BASE RATE)

7.75%


LOAN BALANCE

$20,000–$49,999

INTEREST RATE

0.75%

EFFECTIVE RATE (INTEREST RATE PLUS 6.5% BASE RATE)

7.25%


LOAN BALANCE

$50,000–$99,999

INTEREST RATE

0.50%

EFFECTIVE RATE (INTEREST RATE PLUS 6.5% BASE RATE)

7.00%


LOAN BALANCE

$100,000–$499,999

INTEREST RATE

–0.50%

EFFECTIVE RATE (INTEREST RATE PLUS 6.5% BASE RATE)

6.00%


LOAN BALANCE

$500,000–$999,999

INTEREST RATE

–0.75%

EFFECTIVE RATE (INTEREST RATE PLUS 6.5% BASE RATE)

5.75%


LOAN BALANCE

$1 million or more

INTEREST RATE

–1.25%

EFFECTIVE RATE (INTEREST RATE PLUS 6.5% BASE RATE)

5.25%

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