Margin loans offer competitive interest rates.
Borrow and Buy: The Case for Margin Trading
A margin account allows you to borrow against the securities you already hold in your brokerage account. You may wonder “Why would I want to do that?”
The answer is, for the same reason that you might buy anything on credit; because it gives you more flexibility.
You can think of it along the lines of a home equity loan – in a margin loan there is collateral and there is interest – but instead of the bank loaning you money against your house, your broker is loaning you money against your investments.
Usually, you can borrow up to 50% of the value of the securities you already own at the time the loan is generated. But unlike a home equity loan, there is generally no set repayment schedule for a margin loan, as long as you maintain the required minimum level of equity.
A margin loan can also be used as a source of credit for personal financing needs. In these cases, a margin loan can be a convenient and flexible way to borrow.
By far, the most common use of a margin loan is to purchase additional securities.
When using a margin loan, you can typically buy a new security, even if you don’t have enough cash to pay for it in full. Trading on margin may prevent you from having to sell any of your current positions, which could impact your trading strategy or trigger capital gains obligations.
It is important to keep in mind that while margin trading can magnify gains, it can also magnify losses. So you need to understand when and how it may make sense to use margin trading.
To learn more about how trading on margin works, check out the next video.
Due to Schwab's competitive rates, margin borrowing is generally more cost-effective than other consumer lending options like credit cards. Like any other loan, you must repay your margin loan along with interest, regardless of the underlying value of any securities you might have purchased with margin. Keep in mind that it is possible that margin interest rates may fluctuate during the time you have an outstanding loan. Interest is calculated daily on the amount borrowed and posted to the account on a monthly basis.
Review our current margin rates.
Last changed on 03/23/2020, Schwab's current base rate is 6.50% and is subject to change without notice.
|Debit Balance||Margin Rate||Effective Rate|
|$0-$24,999.99||Base Rate + 1.825%||8.325%|
|$25,000-$49,999.99||Base Rate + 1.325%||7.825%|
|$50,000-$99,999.99||Base Rate + 0.375%||6.875%|
|$100,000-$249,999.99||Base Rate + 0.325%||6.825%|
|$250,000-$499,999.99*||Base Rate + 0.075%||6.575%|
*For balance tiers $500K and above, call 877-752-9749 for more information about our latest rate offers.
Make sure you understand the benefits and risks.
Margin borrowing is not for everyone. Learn more.
Open an account
Open a Schwab One® brokerage account.
To further understand what margin is and how it works, download the Schwab Guide to Margin.
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