Margin can be a powerful tool to help enhance your investment returns. With a margin account, you buy securities with some of your own cash along with cash borrowed from Scottrade. You then pay interest on the funds borrowed until you repay the loan. Borrowing on margin comes with varied benefits and risks such as magnifying profits and losses. Margin is available for many types of accounts at Scottrade; however, it is not available for IRA accounts.

Advantages of Margin Borrowing

- Potential Increased Returns - Using margin (or borrowed money from Scottrade) allows you to own more securities than with cash only, thereby increasing your participation in the market.

- Flexibility - Due to the Federal Reserve Board Regulation T (known as Reg T), accounts under $25,000 that are margin accounts can only complete three round trips (in and out of the same stock in the same day) within a rolling five business day period. However, if you have at least $25,000 in your account, and it is a margin account, you are able to complete as many round trips as you would like.

- Short Selling - With a Scottrade margin account, you can sell short and potentially profit from downward price movements. Short Selling is explained more in the "What is Short Selling?" article in this month's newsletter.

- Easy to Use - Once your account has been approved for margin, you can borrow the money at any time. You do not need to fill out any additional forms or applications. All you need to do is place a trade or withdraw funds from your Scottrade account.

- Simple Repayment - As long as you maintain the required level of equity in your account, there is no set repayment schedule.

- Tax Advantages - Interest on your margin loan may be tax deductible. Consult your tax advisor for further details.

Risks Associated With Margin

Margin is associated with increased risk and is not appropriate for everyone. It is important for you to determine your investment style and understand the risks and requirements that come with a margin account.

- You must repay your margin loan, regardless of the underlying value of securities you purchased. So even if the value of your stocks went to $0, you would still be required to pay back the money that you borrowed.

- Scottrade can change the maintenance margin requirements at any time, without prior notice.

- Scottrade will issue a Maintenance Call if the equity in your account falls below the minimum maintenance requirements. If a maintenance call is issued, you must deposit cash or collateral. If you fail to meet the maintenance call, Scottrade will be forced to sell some or all of your securities.

- To learn more, please see the Margin Agreement.

Managing Your Margin Risk

If you do decide to use margin, there are ways to help manage the risk.

- Borrow less than the maximum amount allowed in your account.

- Actively monitor your account, especially during times when the market is uncertain or when a drop in your positions might occur.

To apply for a Margin account, complete the Margin Agreement and send or fax it to your local Scottrade Branch office. If you have any questions regarding borrowing on Margin, please contact your local Scottrade Branch office.

Jeff Erb
Margin Department - Team Leader at Scottrade