Money Lessons > Investment > How to Disable Margin Trading on Your Schwab Account

How to Disable Margin Trading on Your Schwab Account

Margin trading is the practice of borrowing money from your broker to buy securities. It can amplify your returns, but also your risks. If you want to avoid margin calls, interest charges, and potential losses, you may want to turn off margin ability on your Schwab account. Here is how you can do that.

What is Margin Ability?

Margin ability is the feature that allows you to trade on margin with your Schwab account. It means that you can use the cash and securities in your account as collateral to borrow money from Schwab and buy more securities. The amount you can borrow depends on the value and type of securities you own, and the margin requirements set by Schwab and regulators.

Why Turn Off Margin Ability?

Trading on margin can be a useful tool for some investors, but it also comes with significant risks. Some of the drawbacks of margin trading are:

  • You have to pay interest on the borrowed funds, which can reduce your net returns.
  • You have to maintain a certain level of equity in your account, otherwise you may face a margin call, which requires you to deposit more money or sell some securities to restore your equity.
  • You can lose more than your initial investment if the market moves against you, and you may have to sell your securities at a low price to cover your margin debt.
  • You may not be able to access your cash or securities until you repay your margin loan, which can limit your liquidity and flexibility.

If you want to avoid these risks, or if you simply prefer to trade with your own money, you may want to turn off margin ability on your Schwab account.

How to Turn Off Margin Ability?

Turning off margin ability on your Schwab account is a simple process. You can do it online, by phone, or by mail. Here are the steps for each option:

  • Online: Log in to your Schwab account and click on Service > Account Settings > Options & Margins. Under the Margin section, click on the Change button and select No Margin. Review and confirm your changes.
  • Phone: Call Schwab at 877-752-9749 (within the U.S.), or +1-415-667-8400 (outside of the U.S.), and request to remove margin ability from your account. You may need to provide some information to verify your identity and account.
  • Mail: Download and print the Margin Agreement form from Schwab’s website. Fill out the form and check the box that says “I do not want margin ability on my account”. Sign and date the form and mail it to Schwab at the address provided on the form.

What Happens After Turning Off Margin Ability?

After you turn off margin ability on your Schwab account, you will no longer be able to borrow money from Schwab to buy securities. You will also have to repay any outstanding margin loan you may have, either by depositing cash or selling securities. You will still be charged interest on your margin loan until you pay it off completely.

Turning off margin ability does not affect your existing positions or orders, unless they are marginable securities. If you own marginable securities, you will have to either sell them or transfer them to another account that has margin ability. If you have open orders for marginable securities, you will have to cancel them or modify them to cash orders.

Leave a Reply

Your email address will not be published. Required fields are marked *