Margin Loans from Charles Schwab & Co., Inc.
Applying for margin, an optional account feature, is subject to eligibility, which allows borrowing against the securities in your portfolio. The money can be used to purchase securities or for other non-investment needs.
If you decide to select margin trading as an account feature and are eligible, you will be introduced by Charles Schwab U.K., Limited (CSUK) to Charles Schwab & Co., Inc. (CS&Co) and the credit agreement would be considered an exempt agreement under the UK Consumer Credit Act.
How Margin Works
Schwab margin is a flexible and convenient line of credit, which when used correctly can help you execute a range of investment strategies. Once the margin feature is approved and in place on your account, you can borrow with no additional paperwork because you have the ability to access your available margin cash by placing a trade or withdrawing cash.
Margin borrowing may not be right for everyone. It's important that you fully understand the key features of margin borrowing including the applicable market rules and how different conditions may affect your investments, and take time to consider them in order to make an informed decision about whether margin is a suitable tool for your financial needs and circumstances. Please read carefully the terms and conditions of margin contained in the Account Agreement in the Margin and Short Account Agreement section and in the Margin Borrowing at Schwab Overview and Disclosure Statement before deciding whether to add margin trading as an optional account feature.
How much can you borrow?
The amount you can borrow depends upon the type and value of securities in your account.
- To begin borrowing at Schwab, you must have at least $5,000 in cash or marginable securities1 in your account.
- The amount of money you can borrow on margin toward the purchase of securities is typically limited to 50 percent of the value of marginable securities in your account. However, it is prudent to borrow less to reduce risk.
- Once you borrow on margin, you are required to maintain a certain amount of equity in your account, depending on the securities you hold. Typically, the equity maintenance requirement is at least 30% of the total account value, but it can be higher for certain securities or accounts.
- Schwab calculates your buying power and cash available for withdrawal and provides the information with your Schwab brokerage account.
The benefits of margin borrowing
With a margin loan from Schwab, you can:
- Buy more securities than you could on a cash-only basis.
- Take advantage of timely market opportunities or make investment changes when you want.
- Defer any capital gains taxes that might result from selling securities to meet your financing needs.
- Repay the loan at your own pace, as long as you maintain the required level of equity in your account.
- Enjoy a cost-effective borrowing option with competitive rates.
- Possibly deduct the interest against your net investment income. (Please consult your tax advisor.)
The risks of margin borrowing.
Margin borrowing may not be right for everyone and involves significant risk. Consequently, the margin feature is optional and is subject to eligibility. It's important that you fully understand how margin is suitable for your financial circumstances, the key features and rules of margin borrowing and how conditions that may affect your investments.
- Margin borrowing increases your level of market risk, so the value of your investments can go down as well as up.
- You must repay your margin loan, regardless of the underlying value of the securities you purchased.
- Schwab can change its maintenance margin requirements at any time without prior notice.
- If the equity in your account falls below the minimum maintenance requirements (30% for most securities), you'll have to deposit additional cash or acceptable collateral.
- If you fail to meet your minimums, Schwab may be forced to sell some or all of your securities, with or without your prior approval.
- You are not entitled to an extension of time on a margin call.
- Margin interest is charged on a daily basis2 on the credit extended to you and Schwab compounds interest on a daily basis.
Before you begin using margin, you should read Schwab's Margin Borrowing at Schwab Overview and Disclosure Statement.
How to manage your risk.
Schwab encourages you to use margin prudently. You may wish to consider the following ways to reduce the risk of a margin maintenance call, which occurs when your account equity falls below the required amount.
- Borrow against a diversified portfolio of low-volatility securities.3 This reduces the risk that a single security will drop in value and trigger a margin call.
- Borrow less than the maximum amount allowable in your account. Consider setting your own personal maintenance level.
- Monitor your portfolio, especially during uncertain market conditions, to anticipate a potential decline in value.