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How to invest

See what you can do with margin investing

If margin investing is right for you, you'll find it has several benefits.
5 minute read

Points to know

  • Margin investing can offer benefits such as more buying power.
  • Not all securities can be traded on margin.
  • Margin investing can protect against trading violations in your account.

Why trade on margin

You'll have more buying power

Margin investing allows you to have more assets available in your account to buy marginable securities.

Your buying power consists of your money available to trade in your account, plus the amount that can be borrowed against securities held in your margin account.

Here's an example of how you have a greater potential for gain:

You buy shares of ABC stock for $100,000 using $50,000 from your money market settlement fund and a margin loan for $50,000. You sell the stock for $125,000. You pocket $25,000, a 50% net gain.

If you had paid in full for the stock, you would have received $25,000 on a $100,000 cash outlay, a 25% net gain.

You'll have access to ongoing credit

Margin loans are a ready source of credit and don't require the approval or credit checks that a bank may ask for. There's also no set repayment schedule as long as you maintain the required equity in the account.

For short-term cash flow needs, taking a margin loan and paying interest is a convenient alternative to liquidating a portion of your portfolio, locking in capital gains, and being subject to taxes on those gains. You will, however, be paying interest to Vanguard Brokerage for the duration of the loan.

See the Vanguard Brokerage margin rate interest schedule

You'll borrow at competitive margin rates

Margin borrowing is generally more cost-effective than other lending options, such as credit cards or a bank loan.

You may be able to get a tax deduction

Consult your tax advisor to see if interest on your margin loan is deductible.

You'll be less likely to incur a trading violation

Trading violations, such as freeriding, are less likely to occur in a margin account. You'll realize this benefit even if you never actually borrow money from Vanguard Brokerage.

See examples of trading violations & penalties

You receive a margin call—now what?

KEEP IN MIND

Did you know that you're fully liable for the funds you've borrowed in your margin account? Our risk disclosure statement details what else you should know before you trade on margin.

What you can trade on margin

You can't just trade any type of security you want on margin. The Federal Reserve Board (FRB) determines which securities can be margined. These include:

Securities that aren't marginable (but can still be traded) include:

In addition, we can use our discretion in prohibiting margin investing for a particular security.

Open or transfer accounts

Open or transfer accounts

For additional information about margin investing, including the risks involved, read the Vanguard Brokerage Initial Margin Risk Disclosure Statement or visit the FINRA and U.S. Securities and Exchange Commission websites.

All investing is subject to risk, including the possible loss of the money you invest.