Margin Lending

Margin Lending Definition

Margin lending is the practice of borrowing money from a brokerage account while leveraging investment assets as collateral for the loan.

Is Margin Lending a Good Idea?

Margin borrowing is neither “good” nor “bad”, but rather a strategy that is better suited for some investors over others. Ideal candidates are those who have more substantial assets to use as collateral and those who wish to solve liquidity issues. 

There are several potential uses for margin lending, including as a “bridge loan” (a short-term loan used to cover cash flow needs), as a loan to pay down another higher interest rate loan like student debt, as a solution to short-term credit needs, or as leverage to purchase additional securities.  

What are The Risks of Margin Lending?

Like any investment strategy, margin lending carries both potential benefits and risks. Since margin rates can fluctuate, it is not typically advised for investors to use margin as a long-term financial planning solution. Additionally, the more money that is borrowed, the closer an investor gets to their minimum margin maintenance rate, meaning the loan becomes riskier since market volatility can cause a “margin call” in which investors are forced to sell securities or obtain more cash to secure the balance. 

Overall, there are several considerations investors should be aware of before using margin lending, but it is one of the many tools that can be a useful strategy in a comprehensive financial plan. 

Wealthspire Advisors is a registered investment adviser and subsidiary company of NFP Corp.

Related Posts

cash balance pension plan

Cash Balance Pension Plan

What Is a Cash Balance Pension Plan A cash balance pension plan is a type of employer-sponsored retirement plan that ...

education planning fafsa

How Savvy Investors Plan for Education Expenses

There is a changing reality for many parents – advanced planning and a long-term strategy for financing a child’s education ...

tax cheat sheet

2024 Federal & State Estate and Gift Tax Cheat Sheet

Here we have provided a “cheat sheet” to keep in mind for 2024 federal estate, gift, and GST exemptions, as ...