How to Cash in Your Margin Account

by John Csiszar, Demand Media
    Borrowing against your investment portfolio via a margin loan can be a risky proposition.

    Borrowing against your investment portfolio via a margin loan can be a risky proposition.

    A margin account is a type of investment account that allows you to borrow money to purchase additional investments, such as stocks. Typically, you can borrow up to 50 percent of the value of the account to buy more stocks. For example, if you deposit $10,000 in your margin account, you can typically buy up to $15,000 of stock. You must pay interest on the amount you borrow, as with any loan. The effect of buying stock on margin means both your gains and your losses are amplified. To cash in a margin account, you must pay off your loan.

    Step 1

    Sell the investments in your account. If you work with a broker, call or visit the broker in person and instruct him to sell all of your investments. If you have your own online account, enter the orders manually through your brokerage firm's website.

    Step 2

    Check the margin balance of your account. Your brokerage firm will automatically apply the amount of any investment sales to the debit balance created by your margin loan. Since you can only borrow a certain percentage of the value of your investments, usually no more than 50 percent, a sale of everything in your account will usually be more than the debit balance of your loan. However, if the value of your investments has fallen dramatically since you took out your margin loan, you may still owe additional money even after your sales.

    Step 3

    Pay off the remaining margin loan. If the value of your margin loan is more than the value of your investments, you will have to come up with additional cash to pay off your loan and close your account. This scenario almost never happens, because once your equity falls far enough, your brokerage firm will issue you a margin call, or essentially a demand to repay part of the loan immediately. The U.S. Securities and Exchange Commission enforces a "maintenance requirement" that forces you to have at least 25 percent of the value of your securities in your account at all times, and many brokerage firms up this minimum required value to 30 or 40 percent. However, if your investment value plummets overnight, you may be left with an additional loan balance for which you are still legally liable.

    About the Author

    John Csiszar began writing in 1989 at the ERIC Clearinghouse for Junior Colleges. His work appears in various online publications, including The Huffington Post. Csiszar earned a B.A. in English from UCLA and served 18 years as an investment adviser and certified financial planner.

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