How to Set up a Margin Trading Account

If you have a brokerage account for trading stocks and options, you may set up margin trading. Margin trading is where the broker —Fidelity, Schwab or eTrade, for example — agrees to loan you money for the purpose of trading. The broker uses the securities in your account as collateral. It allows you to borrow up to a certain percentage of your account value. You must take special steps to set this up.

Instructions

1. Call your broker and ask to set up a margin trading account. The account representative will send you a form.

2. Fill out the form. You will be asked about your employment and income information. This is essentially a loan application, so it is very similar to what you would fill out in a mortgage application. If you have a joint account, make sure that all joint owners sign the form.

3. Return the form to your broker.

4. Begin your margin trading. Be very careful to keep your margin debit balance (the amount of the outstanding loan) under control. Use extreme caution when trading with margin.

Tips & Warnings

• Make sure you fully understand the requirements and rules of your broker before placing margin trades.

References

• Bankrate.com; What in the world is margin trading?; Laura Bruce; March 1, 2000