The most significant advantage of using margin is the ability to leverage your investments and increase the returns when the price of your holdings is moving in your favor. A simple example explains the power of leverage:
Margin Trading Example: You have $20,000 worth of securities bought using $10,000 borrowed and $10,000 in cash. When the value of these securities rises by 25% to $25,000, and the amount you borrowed from your broker stays at $10,000, your equity becomes $15,000. That means your equity grew from $10,000 to $15,000, which is a 50% growth rate.
Competitive interest rates
Firstrade's margin interest rates are among the lowest available in the industry. Learn more the benefits of margins through our broker fees.
Avoid Cash Account violations caused by unsettled funds.
When you buy or sell securities in a cash account, it usually takes 2 business days for the transactions to settle. Transactions involving unsettled funds sometimes can lead to a Good Faith violation and a 90-Day Restriction violation. Margin account trading helps you avoid such violations. Learn more about cash account rules.
Being able to invest more while having limited cash on hand allows you to take advantage of timely market opportunities.
Margin buying enables you to diversify your portfolio by using the margin buying power if you hold a concentrated stock position in your account.
Easier financing option
You can finance to meet your personal needs without additional paperwork or fees.
Increased cash dividends
An increase in current income from cash dividends.
Interest on margin loans may be tax deductible against your net investment income. Please consult your tax advisor.