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Margin Trading Account1
A margin account is a type of investment account that allows you to borrow money from your brokerage, against the assets in your account, to buy other investments. This gives you more purchasing power and the ability to leverage your existing investments to potentially increase the size of your portfolio. However, using borrowed money to finance the purchase of investments involves greater risk than a purchase using personal cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required remains the same even if the value of the securities declines. An investment strategy that uses borrowed money could result in far greater losses than an investment strategy that does not use borrowed money.
Trading with Margin Accounts
A margin account may provide investors with access to leverage, short selling, and options trading features. Discover the benefits and risks of borrowing funds to invest as we discuss the key differences between a margin and cash account.
How do margin accounts work?
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T+1 |
Buying and selling most securities generally takes one business day to settle |
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Margin requirement |
The minimum amount of equity (or buying power) you must have in your account to make a trade |
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Loan value |
The maximum percentage of a security's value that a broker can lend to a customer |
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Margin calls |
If the value of your investments fall below a certain level, you may be required to deposit additional funds or sell positions |
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Interest cost |
You will need to pay interest on the borrowed funds. Margin interest rates are subject to change |
Comparing Cash to Margin account at TD Direct Investing
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Margin Accounts |
Cash Accounts |
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What are the available investment types?
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Stocks, mutual funds, ETFs, Options, and fixed income
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Stocks, mutual funds, fixed income and ETFs
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Can I buy securities using leverage?
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Yes
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No
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Can I trade options?
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Yes
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No
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Is short selling permitted?
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Yes
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No
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More investment choices
Got questions? We have answers.
When trading on margin, you borrow money against the securities you already own to buy additional securities. Review our margin rates in Margin Requirements & Concentration Guidelines. or visit our margin centre.
Securities with Increased Margin
The loan values of some securities may change. Please see our list of Securities with Increased Margin.
With a margin account, you can borrow money from TD Direct Investing in order to buy securities.
The amount of money you can borrow (or margin) is determined by the securities you hold. Some securities have higher margin lending rates than others.
When you use margin to buy a security, you need to pay interest on the amount you have borrowed.
The volatility of the value of securities can affect available margin and can create negative margin balances for securities which were initially purchased with sufficient margin. Strategies for avoiding negative margin balances include frequent account monitoring and maintaining additional margin balances to allow for volatility.
Example:
To purchase 1,000 shares of a stock at $50 with margin rate of 30%, the margin requirement would be:
1,000 shares x $50 x 30% margin rate = $15,000
This means you need $15,000 (30% of the purchase price) in available cash and/or margin in the account before the buy order can be entered.
In this example, TD Direct Investing is lending you 70% of the trade value.
Margin can help you to quickly react to market opportunities. A margin account also allows you to apply for the following features:
- Option Trading
- Short Selling
Note: Trading on margin may not be appropriate for all customers and it is important that you fully understand the associated risks. Using borrowed money to finance the purchase of investments involves greater risk than a purchase using personal cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required remains the same even if the value of the securities declines. An investment strategy that uses borrowed money could result in far greater losses than an investment strategy that does not use borrowed money. Please refer to our Margin Disclosure Statement.
Clients are responsible for maintaining a positive margin balance at all times. TD Direct Investing reserves the right to take any action, at any time, without notice to protect our interests, as outlined in the Margin Disclosure Agreement.
Examples:
Long Stock |
Short Stock |
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Purchase 1,000 shares of a stock with margin rate of 50% at $50. The margin requirement would be: 1,000 share x $50 x 50% margin rate = $25,000 This amount must be in the account before a purchase order is placed. Since 50% is the margin requirement, TD Direct Investing is lending the account holder 50% of the trade value. Maximum loan value is -1,000 shares x $50 x 50% = $25,000 |
Short sell 500 shares of a 30% marginable stock priced at $10.00. The margin requirement to accept the trade is calculated the same as if you were purchasing the stock: 500 shares x $10.00 x 30% = $1,500. The total margin requirement to hold the position includes 100% of the proceeds of the short sell and is calculated as follows: 500 share x 10.00 x 130% = $6,500.
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Scenario one The market value of the stock increases to $60. The maximum loan value is now: 1,000 shares x $60 x 50% = $30,000 Since the loan balance is $25,000 the account now has available margin of $5,000 which gives the account holder additional purchasing power.
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Scenario one The market value of the stock increases to $20. The total margin requirement of the short position is:
The account would need a deposit of cash or margin-eligible securities the same day or as otherwise directed by TD Direct Investing. |
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Scenario two The market value of the stock decreases to $40 The maximum loan value is now: 1,000 shares x $40 x 50% = $20,000 Since the loan balance is $25,000 the account now has a margin requirement of $5,000 which must be immediately resolved.
The account requires a deposit of cash or margin-eligible securities by close of business that same day. Maintenance: For every dollar the stock decreases, in this example the client would have to put up an additional $0.50/share in margin. |
Scenario Two The market value of the stock decreases to $5. The total margin requirement of the short position is:
This available margin is available for additional trading. Maintenance: For every dollar the stock increases, in this example, the client would have to put up an additional $1.30/share in margin. |
To calculate the margin required for a long stock purchase, multiply the number of shares by the price by the margin rate. The margin requirement for a short sale is the margin requirement plus 100% of the value of the security.
Margin Requirement = shares x price x margin rate percentage
Examples:
Long Stock |
Short Stock |
Purchase 1,000 shares of a stock at $50 with margin rate of 30%. The margin requirement would be: 1,000 shares x $50 x 30% margin rate = $15,000 This is the minimum required amount + margin that must be in the account before a buy order can be entered. Since 30% is the margin rate, TD Direct Investing is lending the account holder 70% of the trade value. Maximum loan value is 1,000 shares x $50 x 70% = $35,000
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Short sell 500 shares of a 50% marginable stock priced at $10.00. The margin requirement is 150%. Note: 100% of the margin requirement is generated from the sale of the security. Therefore, the additional initial margin requirement is 50%, the same amount required in order to accept the trade if you were purchasing the stock. 500 shares x $10.00 x 50% = $2,500 The total margin requirement to hold the position, including the 100% of the proceeds from the short sell, is calculated as follows: 500 shares x 10.00 x 150% = $7,500 (Note: TD Direct Investing does not pay interest on the cash amount that a client receives as a result of a short sale.)
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You can enable options and/or short selling features, if required, when you open a new margin account online or at the branch.
To enable options and/or short selling for an existing margin account, please log into the TD App and choose Contact Us or contact TD Direct Investing at 1-800-465-5463 to speak to an Investment Representative.
No, short-selling is not available for partial shares.
Interest rates are subject to change. To review the current annual interest rates, please visit this page.
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