Firstrade 5-star brokerage rating

Stock Broker With Lowest Margin Maintenance Requirements For Online Trading

Broker With Lowest Margin Maintenance Requierment

Firstrade offers the lowest margin maintenance requirement in the online trading industry for long stocks: 30%.

Choosing a Broker With a Low Margin Maintenance Requirement

When trading on margin, Regulation T, known informally as 'Reg T', requires traders to have at least 50% of the purchase price of long positions of stock in their account at the time of purchase. Reg T also requires traders to maintain at least 25% in account equity of the current market price of the long stock position that was originally purchased on margin. Brokers are allowed to increase the 25% requirement, known as the minimum maintenance requirement, if they prefer a higher amount. Some firms do so. For example, the minimum maintenance requirement at Fidelity is 30% for long positions of stock, whereas Vanguard has a 35% minimum.



Suppose you want to buy $20,000 worth of stock, but don't actually have $20,000. Using a margin account, your broker allows you to purchase the stock anyway. Under Reg T, the government requires an initial $10,000 in your margin account (50% of the total purchase price). After the purchase, the minimum maintenance requirement kicks in. At OptionsHouse, the requirement is 30%, so you would have to maintain an account equity of $6,000 ($20,000 * 30%), assuming the price of the stock remained at purchase level. If you had made the trade at Vanguard, you would have had to maintain $7,000 ($20,000 * 35%). At Firstrade, you can carry a $20,000 stock purchase with $1,000 less in account equity compared to Vanguard. That's why you want the lowest margin requirement as possible. The lower the margin requirement, the more stock you can buy and carry for a given account balance.

Purchasing several stocks all on margin is an even better example. Let's say you purchased $40,000 of five different stocks for a total purchase of $200,000. The minimum maintenance requirement at Firstrade would be $60,000, whereas Vanguard would require $70,000, a $20,000 difference. The larger the purchase size, the greater the difference between brokers will become. Obviously, traders are going to prefer lower margin requirements.

Keep in mind that the above figures are hypothetical; actual numbers change intraday as the price of the stock changes. When the stock price moves, just multiply the current price by the broker's margin requirement to calculate the minimum account equity needed to be maintained. A lower maintenance requirement from the broker always results in a lower required account balance for a given stock price.

Suppose the fives stocks decline in price, and the $200,000 account balance falls to $140,000. At Firstrade, the maintenance requirement is now $42,000 ($140,000 * 30%), whereas at Vanguard the requirement would be $49,000 ($140,000 * 35%).

If the price of the stock drops low enough, a margin call can be issued by the broker against your account, requiring you to deposit more funds. The lower the maintenance requirement, the further the stock's price can drop before a margin call is issued. In the above example, a margin call would have been triggered at Vanguard, but not at Firstrade. The $140,000 balance minus the original $100,000 loan to purchase the stocks results in an account equity of $40,000, which is above the $35,000 minimum of Firstrade, but below the $49,000 requirement at Vanguard.

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5-star brokerage rating

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Besides a good margin policy, Firstrade also provides good trading services and excellent prices for stocks, ETF's, and mutual funds. The broker offers a ultra-low, flat-rate of $2.95 per trade on stocks and ETF's. The firm also has excellent tools for options traders, and a very low $9.95 fee for mutual fund trades. The firm does not have any minimum requirements for account balances or trading volume.

Firstrade also has excellent margin rates. Currently, for a margin debit over $1 million, the interest rate is only 4.50%. The highest rate is 8.50% for balances below $25,000. Margin rates incrementally decrease from 8.50% to 4.50% for higher balances. 

Active traders will especially benefit from the broker's excellent trading tools. The platform displays account and position data, market news, charting, strategy testing, and options research. The trading system is customizable and user friendly.

The broker also has apps for mobile devices. The interface is user friendly. Users can search for options, read market news, place orders, and look over account and position data.

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