Margin Terms

Although a lot of stocks and ETFs can be bought on margin, some securities available in a ShareBuilder account cannot. We also apply our own criterion that meets or exceeds the Federal Reserve Board in determining which securities can be bought on margin. Penny stocks, IPOs, extremely volatile stocks, and options are examples of securities that cannot be bought on margin.

Tip: While margin can boost an investment strategy, buying securities on margin is not for everyone. Before investing on margin, please give the Margin Account Agreement the once over to review important risk disclosure information, and see our margin interest rates.

The term collateral refers to assets used to secure a margin loan. If your margin loan defaults, the collateral becomes subject to liquidation.

Tip: Buying securities on margin isn't appropriate for every investor. Before investing on margin, please read the Margin Account Agreement for important risk disclosure information, and see our margin interest rates.

From time to time, we may require an investor to make a margin deposit (i.e. deposit additional cash or securities) to meet our maintenance requirement.

If one or more of the stocks you bought on margin decrease in value past a certain threshold, we'll send you a margin call. If you don't deposit additional cash or margin eligible securities by the maintenance call due date, we'll go ahead and liquidate securities in your account to meet the maintenance call.

The amount of stock sold could be up to 4 times the amount of the call. Please note that if four liquidations (whether done by us or you) occur in a 12-month period to meet a maintenance call, the account will be restricted from margin borrowing for 90 days.

Tip: Buying securities on margin isn't appropriate for every investor. Before investing on margin, please read the Margin Account Agreement for important risk disclosure information, and see our margin interest rates.

Basically, liquidating is the process of turning securities into cash. You can do this by placing a sell order on the open market. After the sell order, the cash then goes back into your cash balance

In the case of a margin call, the securities in your account may be liquidated to bring the account up to the maintenance requirement.

Tip: Buying securities on margin isn't perfect for every investor. Before investing on margin, please read the Margin Account Agreement for important risk disclosure information, and see ourmargin interest rates.

Leverage lets you borrow money to fund your investments. Using leverage comes with more risk because you have the potential to lose more money than you invested.

For example, let's say you buy 20 shares of stock and the total cost is $10,000. If you want to buy more stock (but lack the funds), you can borrow up to another $10,000 with leverage. That way, you can increase the amount of shares you own. If the value of the shares goes down in price, you may be subject to a margin call.

Tip: Buying securities on margin isn't right for every investor. Before investing on margin, please read the Margin Account Agreement for important risk disclosure information, and see our margin interest rates.