When trading on margin, you borrow funds from your broker to purchase more securities than you could with your own cash alone. This can increase your buying power, meaning you can control a larger position with the same amount of capital.
However, margin trading also increases your risk because losses are magnified, and you must meet certain margin requirements to open and maintain these positions.
- Initial Requirement: The percentage of your own money needed to open a trade.
- Maintenance Requirement: The minimum equity you must keep in your account to hold that position. Falling below this triggers a margin call.
- Day Trade Requirement: The equity requirement specific to intraday trades (positions opened and closed on the same day).
Long Stock Requirements
| Type of Security | Initial Requirement | Maintenance Requirement | Day Trade Requirement |
|---|---|---|---|
| Priced above $5 | 50% × M.V. | 25% × M.V. | 25% × M.V. |
| Priced between $3 and $4.99 | 50% × M.V. | 50% × M.V. | 25% × M.V. |
| Priced below $2.99 | 100% × M.V. | 100% × M.V. | 25% × M.V. |
| 2× Leveraged Exchange Traded Funds (ETFs) | 50% × M.V. | 50% × M.V. | 50% × M.V. |
| 3× Leveraged Exchange Traded Funds (ETFs) | 75% × M.V. | 75% × M.V. | 75% × M.V. |
Short Stock Requirements
| Type of Security | Initial Requirement | Maintenance Requirement | Day Trade Requirement |
|---|---|---|---|
| Priced above $16.625 | 50% × M.V. | 30% × M.V. | 25% × M.V. |
| Priced between $5 and $16.625 | $5 per share | $5 per share | 25% × M.V. |
| Priced below $5.00 | $5 per share | $5 per share | 25% × M.V. |
| 2× Leveraged Exchange Traded Funds (ETFs) | 60% × M.V. | 60% × M.V. | 50% × M.V. |
| 3× Leveraged Exchange Traded Funds (ETFs) | 90% × M.V. | 90% × M.V. | 75% × M.V. |