What is trading on margin

Market price returns are based on the prior-day closing market price, which is the average of the midpoint bid-ask prices at 4 p. Market price returns do not represent the returns an investor would receive if shares were traded at other times. Returns include fees and applicable loads. Since Inception returns are provided for funds with less than 10 years of history and are as of the fund's inception date.

Before investing consider carefully the investment objectives, risks, and charges and expenses of the fund, including management fees, other expenses and special risks. This and other information may be found in each fund's prospectus or summary prospectus, if available.

Always read the prospectus or summary prospectus carefully before you invest or send money. Prospectuses can be obtained by contacting us. Expense Ratio — Gross Expense Ratio is the total annual operating expense before waivers or reimbursements from the fund's most recent prospectus. You should also review the fund's detailed annual fund operating expenses which are provided in the fund's prospectus.

This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory including financial planning and other services. Banking products are provided by Bank of America, N. Merrill Lynch Life Agency Inc.

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At that point an investor has from a few hours to a few days to bring the account value up to the minimum maintenance level. She can do that by depositing more cash or selling equities or closing option positions to increase the amount of cash in the account.

Miss the margin call deadline, and the broker will decide which stocks or other investments to liquidate to bring the account in line. Does the threat of a margin or maintenance call make you nervous? Stock values are constantly fluctuating, putting investors in danger of falling below the maintenance level. As an added risk, a brokerage firm can raise the maintenance requirement at any time without having to provide much notice, according to the fine print of most margin loan agreements.

Being forced to lock in losses. If covering a margin call requires you to sell off shares, the opportunity to hold onto a stock to see if it recovers from a loss is off the table. Short-term sales that trigger a tax bill. Investors trading in a taxable brokerage account need to consider which shares of what stock they put up for sale to avoid a higher short-term capital gains tax bill.

On the plus side: In some cases interest on margin loans may be tax deductible against your investment income. Loan terms that gut investment gains. A hit to your credit. Exposure to greater losses. As illustrated in the example above, buying on margin can lead to losing more money on a trade than you would have if you stuck with the cash you had on hand.

Margin loans, like credit cards, can be a helpful leveraging tool. For investors who understand the risks and have ample investing experience, margin trading can enhance profits and open up trading opportunities.

What is margin trading? Risk Slide Tool: Analyze your portfolio across a range of conditions. Use the grid and the graph within the tool to visualize potential profit and loss. Watch a demo on how to use our margin tools. Learn more about margin Our knowledge section has info to get you up to speed and keep you there.

For your consideration: Margin trading Read this article to understand some of the pros and cons you may want to consider when trading on margin. Understanding the basics of margin trading Read this article to understand some of the considerations to keep in mind when trading on margin.

Portfolio margin: Basic hedging strategies Read this article to gain an understanding of basic hedging strategies. Explore our library.