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Seeking info on opening a margin LOC

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Seeking info on opening a margin LOC

As the subject implies, I’d appreciate any information on the margin line of credit application process. To keep this discussion focus on the subject, talking points should be relative to the application requirements and process and not the pros / cons of a margin account. 

 

  1. Did you have a prior relationship with the brokerage (individual account, HSA or 401(k) prior to your application?
  2. If yes, is the majority of your investments held with the brokerage?
  3. What did the application process entail and what was the application processing time?
  4. Was a SP or HP required?
  5. What was your margin approved for (e.g., 50%, 100%, 150% or 200%+ of your assets)?
  6. How is the interest rate determined? 

I’m not sure if the process is consistent across the brokerages. If you don’t mind sharing, which institution did you apply / obtain a margin account with? 

 

Thanks  🤓

$mart $$$: #1 Invest, #2 Prioritize health, #3 Limit debt
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Re: Seeking info on opening a margin LOC


@Namaste7 wrote:

As the subject implies, I’d appreciate any information on the margin line of credit application process. To keep this discussion focus on the subject, talking points should be relative to the application requirements and process and not the pros / cons of a margin account. 

 

  1. Did you have a prior relationship with the brokerage (individual account, HSA or 401(k) prior to your application?
  2. If yes, is the majority of your investments held with the brokerage?
  3. What did the application process entail and what was the application processing time?
  4. Was a SP or HP required?
  5. What was your margin approved for (e.g., 50%, 100%, 150% or 200%+ of your assets)?
  6. How is the interest rate determined? 

I’m not sure if the process is consistent across the brokerages. If you don’t mind sharing, which institution did you apply / obtain a margin account with? 

 

Thanks  🤓


1, 2 and 4: You can set up a margin account the minute you open the brokerage account. When I had mine, no credit pull was made because the securities you have with that brokerage are the collateral for the margin account.

3: The approval process is pretty much instantaneous with setting up the brokerage account because the brokerage has almost no risk. See my answer to #5 for the reason why.

5: The maximum margin credit you are allowed is 50% of the value of the securituies you have with that brokerage. That way, if the market dips and you fall below the 50% and don't promptly pay the Margin Call the brokerage can sell your positions out and get paid quickly.

6: Variable rate tied to some index, I can't remember which one.

4/1/2017 EQ 579 TU 595 EX588
9/20/2018 EQ 810 TU 807 EX 795
6/12/19 EQ 820 TU /789 EX 793


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Senior Contributor

Re: Seeking info on opening a margin LOC

Fidelity

1. Existing brokerage customer. I was upgrading from an account with low-level options authority (equity covered calls only, no margin).

2. 7 figure account

3. The form was maybe 6-8 pages long. It asked for my risk tolerance (a question few people can coolly and objectively answer, but it's CYA for them), options trading experience (a factor that amuses me, as many experienced traders continually lose money), income, and investment net worth. No POI or other verification documents. It required a wet signature. I sent the form in snail mail and got approved maybe 10 days later.

4. No HP, not sure about SP.

5. I'm not entirely sure. I have a very concentrated stock portfolio. According to the collateral rules, it's riskier to have ~40% of my portfolio in Berkshire Hathaway at a reasonable valuation than it is to own 2% in each of 20 lower-quality stocks in a mature bull market. I disagree, but it does make my shares less valuable when calculating their value as collateral. I don't actually do anything to trigger margin interest. I just sell cash-covered puts and occasionally buy stock with the proceeds of an executed-but-unsettled share sale.

6. For most brokerages:

Interest Rate = A + B

A changes every few months. I'm not sure if it's based on some Federal Reserve rate or just supply and demand.

B depends on the amount of money you're borrowing. The more you borrow, the lower the rate.

Fidelity rates range from 5.5% to 9.825%, but Interactive Brokers charges less.

 

Again...apart from using "unsettled sale" balances to buy stocks, I don't use the margin feature.

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