How to Open a Margin Account With Fidelity

Margin accounts allow investors to borrow against their portfolios to buy more securities. Margin can turbocharge your returns when stocks go up, as profits are made on the full position size including the borrowed money. However, trading stock on borrowed money also has serious risks, so margin privileges are reserved for active and experienced self-directed investors who understand the risks involved. At Fidelity, approval is required to trade on margin or open this type of account, which has far more complex requirements than a standard brokerage account.

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Margin Account Investing With Fidelity

Fidelity brokerage offers margin as a feature customers can add to individual or joint brokerage accounts. Most stocks listed on major exchanges and many mutual funds are marginable, meaning they can be bought on margin. Certain securities, like futures and options, cannot be traded with borrowed money.

All marginable assets in an approved account can be used as collateral for the loan, even if they were bought with cash. So investors don’t necessarily need to buy securities on margin just because they have a margin account. Fidelity can also lend out marginable securities to itself or others, as detailed in its account terms and conditions.

A margin account at Fidelity allows customers to borrow up to 50% of the purchase price of stocks and other eligible securities, but this can vary. For example, at the maximum of 50%, an investor with $10,000 in an account could buy up to $20,000 worth of stock on margin since Fidelity will front them the other $10,000 as a margin loan.

Fidelity requires customers to maintain at least 25% equity in the account as collateral at all times. It can set higher “house” margin requirements based on its assessment of risk and can demand more collateral by issuing a margin call. If the call isn’t promptly met by adding assets, Fidelity can sell securities in the account at its discretion to raise cash.

Investors pay interest on margin loan balances based on Fidelity’s base lending rate, plus or minus a premium or discount based on the size of the balance. As of the writing of this article, Fidelity, at the lowest, offers a 9.25% rate available for debit balances over $1,000,000. The current base margin rate, effective since 7/28/2023, is 12.325%. These rates are variable and can change without notice.

The broker charges no annual fee for margin privileges. Interest accrues daily and is charged monthly. Fidelity can impose separate margin interest charges in certain situations, like prepaying for securities sales.

Steps to Apply for a Margin Account With Fidelity

Interested investors can request margin trading privileges when opening a new Fidelity account or add them to existing eligible accounts. Here’s how to apply:

Online: Visit Fidelity’s margin trading page and click “Add Margin.” You’ll be prompted to log into your account and complete, sign and submit its online margin application form. This signed form authorizes margin and acknowledges understanding the risks involved.

Phone: Call (800) 343-3548 and say “margin” to speak with a representative who can submit the request.

By mail: Download the margin election agreement from Fidelity.com. Print, complete and mail it in.

The application process includes an approval review, which verifies your identity and assesses eligibility. Factors checked include income, investing experience and account assets. Margin privileges usually take one to two business days to activate once approved.

Fidelity will notify you by phone or online message if and when you are approved. If you get denied, you can request reconsideration after addressing any issues raised, such as boosting account assets.

Pros and Cons of Using Margin Accounts

Investing with margin can provide several potential benefits, like:

Buy more securities and diversify, as margin, if used correctly, can magnify your purchasing power. With 50% leverage, an investor effectively doubles their potential position size.
Seize opportunities. Borrowing against existing holdings lets you take advantage of chances to buy without waiting for cash, though again, this can be very risky.
Bridge funding gaps. Margin can provide you with short-term financing until your accounts are replenished.

Margin also comes with substantial risks and downsides, including:

Falling share prices may trigger margin calls that require you to sell at inopportune times.
Amplified losses. Securities bought on margin decline twice as fast percentage-wise if prices drop.
Margin interest costs. Ongoing finance charges accrue regardless of investment performance.
Loss potential beyond original deposits. Unlike cash accounts, margin account losses can exceed the amount you’ve invested.
Liquidations without notice. Brokerages don’t have to warn customers before selling securities to cover margin loans.
No personal input on assets sold. Fidelity chooses which holdings to liquidate to satisfy margin requirements.
Variable rates. Interest charges fluctuate along with Fidelity’s base margin lending rate.

With these significant and inherent negatives to margin trading, this process certainly doesn’t suit every investor or align well with every financial situation.

Bottom Line

Margin accounts allow experienced self-directed investors to increase their holdings by borrowing up to 50% of the purchase price of eligible securities. But amplified leverage also means amplified risks. Investors can lose more than their own money when trading on margin, which can be incredibly detrimental in certain situations. Fidelity requires investors who want to trade on margin to apply and receive approval, as it simply isn’t suitable for everyone.

Investing Tips

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