How does margin work?

Margin trading allows you to borrow funds from our clearing firm to purchase securities. The securities in your account serve as collateral for the loan. Here is an example to illustrate how margin works:

Example:

• You deposit $5,000 in your margin account
• You borrow $5,000 from the brokerage at an interest rate
• You use the $10,000 total to purchase $10,000 worth of securities

If the securities value rises to $15,000:

• The amount you borrowed remains $5,000
• But your equity in the account rises to $10,000
• You gain $5,000 in equity without adding any new cash

If the securities value drops to $7,500:

• The amount you borrowed remains $5,000
• But your equity drops to $2,500
• You lose $2,500 in equity, even though the actual cash loss is only $1,250

If the securities value drops to $6,000:

• The amount you borrowed remains $5,000
• But your equity is only $1,000
• This is below the margin maintenance requirement, so you receive a margin call