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What are the benefits and risks of margin accounts?
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 that amount.
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 margins. Strategies for avoiding negative margin balances include frequent account monitoring and maintaining margin balances to allow for volatility.
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 + 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. It is important that you fully understand the risks associated with trading securities. Please refer to our Margin Disclosure Statement.
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Please note that the answers to the questions are for information purposes only for the products discussed. Individual circumstances may vary. In case of discrepancy, the documentation prevails.