For your clients who qualify, Folio offers margin borrowing at competitive rates, enabling them to purchase additional securities (including fractional shares of securities in a folio) without depositing additional funds, based on the securities they already have in an eligible account. By borrowing against those securities rather than selling them, you can help keep your clients’ investment strategies intact and delay capital gains (or losses) resulting from the sale of investments. It also keeps their assets invested with you. Clients should consult a tax consultant for more details.
- Individual, Joint, Trust, and Business accounts are eligible for margin borrowing
- Note that only one individual account and one joint account may be margin enabled. See FAQs for more details.
- Equity securities held by us in your client’s brokerage account, such as stocks and ETFs, are generally considered to be acceptable collateral
- For an account to be eligible for margin borrowing, it must have a value of at least $2,000, either in cash and/or in eligible securities
- We may lend your client up to 50% of the purchase price of eligible securities
- There is no set repayment schedule, as long as your client maintains the required equity in their account
Risks of Margin Borrowing
- The main risk of margin borrowing is related to decreases in the market value of the securities your client is using as collateral. While margin borrowing has the potential to amplify their gains, it can also magnify their losses. If the value of their securities falls significantly and a “call” is placed on their account, they will need to add funds or sell securities held in that account (possibly at a loss), to correct the deficit.
- If they do not deposit more funds into their account or sell securities held in their account to meet the call within the indicated time period, we can sell securities in their account at a time of our choosing, without contacting you or your client, and neither you nor your client cannot choose which securities are sold to meet a margin call.
- Your client is not entitled to a time extension on a margin call. We can increase the margin requirements at any time and we are not required to provide you or your client with advance notice of changes or provide you or your client with a particular amount of time to deposit more funds.