Marginable securities are those assets that investors can purchase on margin, meaning they do not have the cash in their account to cover the cost, so they borrow it from their brokerage or another financial institution.
If you’re planning to trade on margin, or just want to know more about how it works, you’ll need to understand the difference between marginable and non-marginable securities.
Recommended: What Are Securities in Finance?
What Is a Marginable Security?
The term “marginable securities” refers to any stocks, bonds, options, or anything else, that your brokerage will allow you to trade on margin, or purchase with borrowed money.
There are a lot of rules at play when it comes to margin, set by a variety of different organizations. For example, groups like the Federal Reserve and the Financial Industry Regulatory Authority (FINRA), stock exchanges like the New York Stock Exchange (NYSE), and the individual brokerages themselves all have their own margin rules, including which securities traders can buy or sell on credit.
If you have a margin account, you can get a marginable securities list from your brokerage by asking your representative or looking online.
Marginable Securities Example
Most brokerages that allow margin trading would allow investors to trade large, blue-chip stocks on margin. That means that investors can borrow from their brokerage to buy that stock.
Traders might also use margin to short a stock, or bet that its price is about to go down. In that instance, they’d borrow shares from their brokerage and sell them on the open market to another investor, with the hopes of buying them back later at a lower price.
What Is a Non-Marginable Security?
Non-marginable securities are securities that investors cannot purchased on margin, or by borrowing money from a brokerage to facilitate their purchase.
If an investor or trader wants to purchase a non-marginable security, then, they must do so with a cash account, rather than a margin account.
Non-marginable Securities Example
Non-marginable securities typically include of exotic stock, or those considered high risk, perhaps because of low liquidity and higher levels of volatility. That can include stocks that trade over-the-counter (OTC), or penny stocks ( valued at less than $5 per share). It may also include IPO stocks.
In general, securities held in an IRA or a 401(k) retirement account are non marginable because those accounts do not allow for margin trading.
Differences Between Marginable and Non-Marginable Securities
Here’s a quick rundown of the main differences, and pros and cons between marginable and non-marginable securities:
Marginable & Non-Marginable Securities: Key Differences
|Marginable Securities||Non-Marginable Securities|
|Can be purchased on margin||Cannot be purchased on margin|
|Usually common, popular securities||Tend to be riskier or volatile|
|Require a margin account or margin access||Determined by brokerage, and or regulators|
Why Are Some Marginable and Non-Marginable Securities?
We’ve covered the difference between marginable and non-marginable securities. You should also know that there is a reason that the distinction exists at all: To protect both traders and brokerages. Financial institutions aren’t generally in the business of losing money, so there’s not much incentive to let traders run around with the institution’s money, buying up risky assets.
Marginable securities have a degree of risk built into them that non-marginable securities lack. Specifically, there is risk associated with using leverage, or margin, that could result in some traders finding themselves in debt or subject to a margin call by their brokerage.
Marginable securities are those that you can purchase by borrowing money from your broker, while you must purchase non-marginable securities with cash on hand. Trading on margin is riskier than trading without it, since you can lose more money than you’ve invested, but there’s also potential for higher returns.
SoFi offers margin investing at just 5.25% interest.* It’s a great way to increase your buying power, take advantage of more investment opportunities, and potentially increase your returns at one of the most competitive rates in the industry.
Photo credit: iStock/Delmaine Donson
The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results.
Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A.
*Borrow at 5.25%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.