Know margin risks and how to manage them

While many investors find margin to be a useful tool, the associated risks mean it’s not right for everyone. When considering the use of margin, you should determine how it fits your own investment philosophy and fully understand the rules and requirements. 

 

• Consider your risk-tolerance and investment goals. Remember, margin borrowing increases your level of market risk, so the value of your investments can go down as well as up. 
• You must repay your margin loan, regardless of the underlying value of the securities you purchased. 
• Schwab can change its maintenance margin requirements at any time without prior notice. 
• If the equity in your account falls below the minimum maintenance requirements, Schwab will issue a maintenance call requiring you to deposit additional cash or acceptable collateral. You are not entitled to an extension of time on a margin call.
• If you fail to meet a maintenance call, Schwab may be forced to sell some or all of the securities in your account to protect its loan, with or without your prior approval.

Before you begin using margin, you should read the Margin Risk Disclosure.

 

Take steps to manage your risk

Schwab encourages you to use margin prudently. You may wish to consider the following ways to reduce the risk of a margin maintenance call.
 

• Borrow against a diversified portfolio of low-volatility securities. This reduces the risk of the drop in value of a single security triggering a margin call. 
• Borrow less than the maximum amount allowable in your account. Consider setting your own personal maintenance level. 
• Monitor your portfolio, especially during uncertain market conditions, to anticipate a potential decline in value.

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