Manage your margin account
Be sure to weigh the significant risks of margin trading against its benefits before using this strategy.
POINTS TO KNOW
- Vanguard Brokerage only allows margin investing in nonretirement accounts.
- You need our prior approval to have margin investing privileges.
- You must maintain a certain amount of equity in your account at all times.
What is margin investing?
Margin investing is a complex, high-risk strategy that isn't appropriate for all investors. But used appropriately, margin investing can potentially increase your investment returns and provide you with credit flexibility.
Understand the risks & benefits of margin investing
If you understand the risks of margin investing, you may still decide it's the right strategy for you.
How your margin account works
Vanguard Brokerage only allows margin investing in nonretirement Vanguard Brokerage Accounts with our prior approval.
Your margin account information will be displayed on the Margin balance detail screen when you log on to your account.
Once you're approved for margin trading, you must buy or sell eligible securities in your margin account.
Short sales are a feature of margin accounts. When you sell short, you sell stock that you've borrowed from a broker, hoping its price will drop in the near future so you can buy the shares back and turn a profit.
How you make a profit …
You borrow 100 shares of stock from your broker and sell them for $40 a share, or $4,000.
The stock drops to $30 and you buy 100 shares at a cost of $3,000.
You return the shares to your broker and pocket a profit of $1,000.
… Or suffer a loss
The risk you take with a short sale is that the stock will rise. If that's the case, there's no limit to how much money you can lose.
Using the same example, if the stock you sell at $40 rises to $60, you'll have to pay $6,000 to return the 100 shares to your broker. That's a $2,000 loss.
Good to know!
Buying stock to close out a short sale and return the shares to the lender is called a "buy to cover."
To comply with regulations on margin investing, you must maintain a certain amount of equity in your margin account at all times, depending on the securities held in the account.
If you don't meet minimum requirements, you'll get a margin call—a notice you have to increase the equity in your account to cover the call.
Money for trading
Assets represented by currency, bank balances, checks, or money orders.
Stocks, bonds, money market instruments, and other investment vehicles.
A licensed individual or firm that executes orders to buy or sell mutual funds or other securities for the public and usually gets a commission for doing so.
The profit you get from investing money. Over time, this profit is based mainly on the amount of risk associated with the investment. So, for example, less-risky investments like CDs (certificates of deposit) or savings accounts generally earn a low rate of return, and higher-risk investments like stocks generally earn a higher rate of return.
The amount of money available in your margin account to purchase marginable securities. Buying power consists of your money available to trade, plus the amount that can be borrowed against securities held in your margin account. 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.
The money you can withdraw from your margin account or use to buy securities that aren't marginable (that is, they have a 100% margin requirement). Using margin cash available will increase your debit balance, which may be subject to margin interest.
A demand to increase equity in a margin account to bring it up to minimum requirements.
An investment that represents part ownership in a corporation. Each share of stock is a proportional stake in the corporation's assets and profits.
In a margin account, the value of your securities minus the amount you've borrowed from your brokerage firm.