Margin Loans - Fidelity (2024)

FAQs

What is the minimum margin requirement for Fidelity? ›

Initial margin requirement

Margin accounts require a minimum of $2,000 in net worth to use the margin feature.

It's important to have a plan for reducing your margin balance to minimize the interest amount you're charged which you can do by selling a security or depositing cash into your account through electronic funds transfer (EFT), bank wire, or depositing a check.

With a margin loan, you have none of those expenses. And speaking of credit checks, when you're borrowing from your own account, not only is there no credit check, but the amount you borrow doesn't appear on your credit report as an open account. That means no impact on your credit score.

The biggest risk from buying on margin is that you can lose much more money than you initially invested. A decline of 50 percent or more from stocks that were half-funded using borrowed funds, equates to a loss of 100 percent or more in your portfolio, plus interest and commissions.

Brokerage customers who sign a margin agreement can generally borrow up to 50% of the purchase price of new marginable investments (the exact amount varies depending on the investment).

Margin works by allowing you to borrow against the eligible investments you already hold in your brokerage account, generally up to 50% of the value of those investments. Similar to how a mortgage loan involves using the house as collateral, with a margin loan, Schwab would use your investments as collateral.

You can deduct margin interest from your taxes by itemizing your deductions and subtracting margin interest costs from your net investment income. Tax law limits how you can apply margin interest deductions. Specifically, you can never deduct more than your investments earn in any given tax year.

While margin loans can be useful and convenient, they are by no means risk free. Margin borrowing comes with all the hazards that accompany any type of debt — including interest payments and reduced flexibility for future income. The primary dangers of trading on margin are leverage risk and margin call risk.

There is no monthly principal payment required (although interest will be due periodically) and no term in which you need to repay the loan, although you're allowed to repay part or all of your loan at any time. Potential tax advantages. Margin loan interest may be tax deductible depending on your situation.

How long do margin loans last? ›

You can keep your loan as long as you want, provided you fulfill your obligations such as paying interest on time on the borrowed funds. When you sell the stock in a margin account, the proceeds go to your broker against the repayment of the loan until it is fully paid.

When the value of a margin account falls below the broker's required amount, the investor must deposit further cash or securities to satisfy the loan terms.

For example, you are usually limited to withdrawing the cash value of your margin account, usually up to 50% of the value of the securities in your account.

Especially for beginning investors, it's best to avoid trading on margin since it's not always clear how much you've borrowed from your brokerage and how much you have in equity, plus it's easy to think of all of your holdings as your money even if much of it is borrowed.

There are no minimums to open an IRA or brokerage account with Fidelity. There's no one magic number for how much you need to start investing, or how much you should add each month, because the right number varies depending on your income, budget, and what other financial priorities you're juggling.

To purchase a security on margin, FINRA (a government-authorized regulator of brokerage firms) requires that you have at least $2,000 or 100% of the security's purchase price (whichever value is less) deposited into your account. This is called the margin minimum.

Account Minimums

Investors at Fidelity can buy fractional shares for as low as $1 and there is no minimum to open a self-managed investment account. Investing in Fidelity Managed FidFolios does require a $5,000 minimum, though.