Features & Services Section

Introduction to margin

Introduction to margin

The margin feature allows an account holder to borrow funds using their own securities as collateral. The borrowed funds may be used for any purpose, including purchasing more securities, diversifying a portfolio, paying off higher interest loans, or meeting other personal or business financing needs.

Once approved for margin use, access available funds in the account by placing a trade or withdrawing cash by check, debit card, or wire transfer. The amount allowed to borrow depends on the type and value of securities in the account.

As long as sufficient collateral remains in the account, the loan can remain outstanding until paid down. If the account drops below the minimum margin requirement, Schwab will issue a maintenance call, requiring deposit of additional cash or marginable securities.

Potentially greater returns Own more securities than possible with cash alone.
Trading flexibility Take advantage of timely market opportunities or make investment changes when wanted, while maintaining the minimum equity level required.
Repayment simplicity No set repayment schedule for margin loans, as long as the account maintains the minimum required equity levels.
Stay invested Keep investment strategy on track and defer any capital gains taxes as a result of selling securities.
Portfolio diversification Use margin to diversify your portfolio, if you hold a concentrated stock position.
Convenience Borrow at any time, once approved for margin, without additional forms or applications.
Tax deductibility May be able to deduct interest on margin loans (consult a tax advisor to determine the potential effects for individual situations).
Competitive rates Borrow at a potentially more cost-effective rate than other consumer lending options.
Fees No set-up fees
Minimums
  • Account must contain at least $2,000 in cash or marginable securities to begin borrowing.
  • Generally, funds can be borrowed until the account equity reaches 50% (the value of fully paid securities divided by the value of all securities in the account). This rate can vary based on the securities involved.
  • The margin balance and requirements display on the Balances tab.
Rates
  • Schwab charges margin interest on borrowed funds for the period of time the loan is outstanding (margin interest is compounded daily and posted monthly to the account).
  • The Schwab base rate is not tied to any specific rate or index, including the federal funds rate.
  • Refer to the Margin rates table below for current margin interest rates.
Risks Increased margin exposure offers unique potential rewards but also presents additional risk. When considering margin, it is important to fully understand the following risks:
  • Leverage risk: Leveraging means using margin to potentially capture more returns than when investing on a cash-only basis. Investing on margin when the market performs favorably allows investors to have greater gains than without margin. However, leveraging exposes you to greater downside risk than paying for securities in full, because if the securities acting as collateral for your margin loan lose value, you must still either repay Schwab the amount of money you borrowed on margin or meet a margin call, regardless of the underlying value of the securities you purchased.
  • Interest rate risk: Like any other loan, you must repay your margin loan along with interest, regardless of the underlying value of the securities purchased. It is also possible that margin interest rates may fluctuate during the time you have an outstanding loan.
  • Margin call risk: Schwab can increase its margin maintenance requirements at any time without prior notice. If the equity in your account falls below Schwab’s minimum maintenance requirements, Schwab will issue a margin call requiring you to deposit additional cash or acceptable collateral.
  • Forced liquidation risk: If you fail to meet a margin call, Schwab may be forced to sell some or all of the securities in your account to protect its loan, with or without your prior approval. You are not entitled to an extension of time on a margin call. 
Maintenance requirements The securities used as collateral must maintain a minimum value relative to the account’s margin debit balance. Schwab’s basic maintenance requirement for equity securities is 30% of the current market value of the security; however, this varies depending on the type of security.

Combined requirements for buying and borrowing against securities in a margin account based on Federal Reserve Board Regulation T, FINRA regulations, and Schwab rules are displayed on Schwab Margin Loan Requirements.
Day trading margin requirements Pattern day traders Tooltip must maintain a minimum of $25,000 in equity at all times. On days that a pattern day trader begins the day with less than the required minimum, they will be held to liquidating trades only and will not be permitted to day trade for that entire day.
Power of Attorney (POA) If the account has a POA in place, the agent or attorney in fact will also have access to the margin account.
Debt Balance Margin rate Effective rate
$500,000+ Base Rate + 0.075% 11.825%
$250,000 - $499,999.99 Base Rate + 0.075% 11.825%
$100,000 - $249,999.99 Base Rate + 0.325% 12.075%
$50,000 - $99,999.99 Base Rate + 0.375% 12.125%
$25,000 - $49,999.99 Base Rate + 1.325% 13.075%
$0 - $24,999.99 Base Rate + 1.825% 13.575%

Base rate = 11.75%. Schwab's base rate was last changed on 7/28/2023 and is subject to change without notice.

  • Clients residing in the European Union, excluding residents of the United Kingdom and Switzerland, are not eligible for margin.
  • Clients residing within Europe, including the United Kingdom, are restricted from using their available margin loan value to withdraw funds from their account.

 

Eligible account types Ineligible account types
  • All tenants by entirety
  • Community property
  • Incorporated: C or S corporation
  • Non-incorporated
  • Designated beneficiary individual
  • Designated beneficiary community property WROS
  • Designated beneficiary joint tenant
  • Estate (to liquidate existing positions only)
  • Individual
  • Joint tenant
  • Life tenancy
  • Living trust (if allowed by trust)
  • Tenants in common
  • Testamentary trust (if allowed by trust)
  • Usufructuary
  • Individual Retirement Accounts
  • 401(k) accounts
  • 403(b) accounts
  • Stock liquidation service accounts
  • Uniform gift to minors act (UGMA) accounts
  • Uniform transfers to minors (UTMA) accounts
  • Company retirement accounts (CRA)
  • Conservatorships
  • Guardianships
  • Personal choice retirement account (PCRA, specifically in which a trust company is the trustee)
  • Qualified retirement plans (QRP)
  • Charitable and non-profit organizations
Eligible assets Ineligible assets
  • Most stocks and ETFs traded on major U.S. exchanges priced above $3 per share
  • Most mutual funds, provided they’ve been held for at least 30 days from settlement
  • Most investment-grade corporate, Treasury, municipal, and government agency bonds
  • CDs
  • Non-investment-grade municipal and corporate debt
  • Control and restricted stock
  • Money market funds
  • Penny stocks
  • Options
  • Retirement account assets
  • Annuities

The London Interbank Offered Rate (LIBOR) will be discontinued for all new financial products by December 2021.

Although the Federal Reserve-sponsored Alternate Reference Rate Committee (ARRC) has recommended the Secured Overnight Funding Rate (SOFR) as the replacement rate for LIBOR, multiple reference rates may replace LIBOR.

The Federal Reserve and ARRC recommend firms cease using LIBOR as a reference rate as soon as possible.

In anticipation of this change, please note:

  • Fed Funds will be the default reference rate on new margin agreements going forward.
  • Advisors may want to consider reviewing clients' portfolios to determine LIBOR exposure.  

For more information, view LIBOR: client-facing frequently asked questions.

Schwab will continue to monitor the situation to ensure our products conform to accepted market practices and update you as additional information becomes available.


If you have questions, please contact your Relationship Manager or account management team.

How does Schwab set its margin loan rates?
The margin loan base rate is determined by the following factors:

  • Commercially recognized interest rates
  • Industry conditions relating to the extension of margin credit
  • General credit market conditions

Schwab looks at the current situation as a whole and does not follow a rigid formula with a specific weighting for any factor.

How does payment in lieu of dividends affect margin clients?
Clients who have outstanding margin balances or are shorting a stock could face adverse tax treatment regarding stock dividends.

If an account is linked to a Schwab Bank Investor Checking™ account, can margin be used to cover overdrafts?
Yes. If margin is used, all available margin funds will be used to cover overdrafts.

When is margin interest charged?
Margin interest is charged on the amount loaned upon settlement of the purchase transaction. Interest is calculated daily on the amount borrowed and posted to the account on a monthly basis.

Can market movement close a maintenance call after it has been issued?
Yes. In order to close a maintenance call as a result of market movement, the account must close out of a maintenance call for two consecutive trading days. However, market conditions may still require that positions be liquidated to cover the call. It is recommended that you cover the call immediately to avoid any action being taken.

Introduction to options trading

To learn more about margin, review The Charles Schwab & Co. Guide to Margin.

For additional questions, contact the Advisor Services margins desk at 800-491-1843.

Options Trading and Margin Application
Schwab One® Account Application for Personal Accounts
Schwab One® Account Application for Trust Accounts
Update Your Schwab or Schwab One® Account