Investing with borrowed money, known as buying on margin, can amplify potential gains but also magnify losses. Understanding Which Securities Can Be Purchased On Margin is the first crucial step for any investor considering this strategy. This article will demystify the types of assets eligible for margin trading, helping you make informed decisions.
The Spectrum of Marginable Securities
Not all investments are created equal when it comes to margin trading. Generally, the most common and liquid securities are the ones eligible for purchase on margin. This is because brokers need to be confident they can easily sell these assets if a client’s account value falls below the maintenance margin requirement. The primary categories of securities that can typically be purchased on margin include:
- Common Stocks listed on major exchanges (e.g., NYSE, Nasdaq)
- Exchange-Traded Funds (ETFs) that track broad market indices
- Certain types of bonds, particularly actively traded corporate bonds
However, there are specific limitations and exclusions. For instance, less liquid stocks, over-the-counter (OTC) stocks, and new issues are often not marginable. The eligibility of a security is determined by regulatory bodies and the individual brokerage firm, which has its own set of rules and risk assessments. Brokerage firms also have the discretion to change margin requirements or delist securities from margin trading if they become too volatile or illiquid.
| Eligible Securities | Generally Not Eligible |
|---|---|
| Major Exchange Stocks | OTC Bulletin Board Stocks |
| Broad Market ETFs | Hedge Fund Shares |
| Actively Traded Corporate Bonds | Initial Public Offerings (IPOs) for a period |
To be absolutely certain about the marginability of a specific investment, it’s essential to consult your broker’s official margin account agreement. This document will outline precisely Which Securities Can Be Purchased On Margin through their platform and any associated restrictions. Some brokers may also offer margin trading on a limited selection of other instruments, such as options, but these often come with much stricter rules and higher risk profiles.
Ready to explore your investment options further? Refer to your brokerage’s comprehensive guide on margin accounts for a definitive list of marginable securities and their specific requirements.