How to Use Margin with an Online Brokerage

Margin allows you to borrow money from your broker against securities in your account. Every broker has a list of marginable securities that you can borrow against and sets the maximum limits for borrowing.

Instructions

1

Select the margin feature when you open an online brokerage account. If you have a cash brokerage account, ask your broker how to add margin. Once it's approved, the use of margin is automatic: if you have sufficient collateral in your account and exceed your cash balance, your broker will automatically advance you the money.

2

Use margin to buy stocks online. Typically, you can borrow up to 50 percent of the purchase price. For example, if you have $5,000 cash in your account, you can buy $10,000 in stocks. You must be fairly certain that the profit potential of the stocks you are planning to buy is greater than the margin interest that you will be charged.

3

Check with your broker first to see if the stock you are interested in is marginable---some recent IPOs, thinly traded and foreign issues may not be.

4

Get additional leverage by consolidating your investments in a margin account. Other investments you own---mutual funds, bonds---may also be marginable.

5

Borrow against your holdings in an emergency. If you own $10,000 in securities, you can withdraw up to $5,000 in cash from the account (more against bonds).

6

Use margin judiciously. Leverage magnifies both gains and losses. You must maintain a 25 percent minimum equity in your account. If your account value declines below the minimum, you will get a margin call--a demand to deposit more cash or securities within three days or the broker will sell your holdings to cover the loan.

7

Get off margin as soon as the market goes into a correction. Most stocks decline in a correction; and declines are usually faster than run-ups. There is no reason to magnify your losses while waiting for a margin call.