What Are Non‑Marginable Securities?
Key takeaways
– Non‑marginable securities cannot be used as collateral in a brokerage margin account and must be bought with cash.
– Brokerages maintain internal lists of non‑marginable securities and can change them as prices and volatility change.
– Common examples include recent IPOs, penny stocks, low‑priced or low‑volume issues, over‑the‑counter (OTC) bulletin board stocks, and other highly volatile or illiquid issues.
– Securities designated non‑marginable do not increase your margin buying power and carry no borrowing privilege.
(Source: Investopedia)
What “non‑marginable” means
A non‑marginable security is any asset a broker will not accept as collateral for a margin loan. If a security is non‑marginable, you must pay for purchases in full with cash or settled funds; you cannot borrow against it or count it toward margin requirements. Brokers create and update these lists to limit credit risk and operational burden from frequent margin calls on volatile, illiquid, or uncertain instruments.
Why brokers restrict marginability
– Reduce counterparty and credit risk: volatile or illiquid securities can move sharply so brokers limit exposure.
– Avoid frequent margin calls and forced liquidations on hard‑to‑trade stocks.
– Regulatory and internal risk policies: firms and regulators set minimum standards (e.g., share‑price and liquidity thresholds) that determine margin eligibility.
How non‑marginable securities work in practice
– If you buy a non‑marginable share, you must use available cash or settled funds; you cannot put it up as collateral.
– Holdings in non‑marginable securities do not contribute to your available margin buying power.
– Brokers may require a 100% “margin requirement” for these positions (i.e., no leverage). Some securities that are allowed on margin may still carry higher than normal margin requirements because of special risk designations.
Marginable vs. non‑marginable: what changes
– Marginable securities: accepted as collateral, increase buying power, allow borrowing subject to initial and maintenance margin rules. Borrowing amplifies gains and losses and can trigger margin calls and forced sales.
– Non‑marginable securities: no borrowing allowed, must be fully funded, do not affect margin availability.
Common examples of non‑marginable securities
– Recent IPOs (first public offering), at least until broker policy or market trading history permits marginability.
– Penny stocks and many OTC bulletin board or pink sheet securities (frequently low price, low liquidity).
– Stocks with very low share prices (some brokers apply a $3 or $5 per‑share cutoff).
– Extremely volatile, thinly traded, or otherwise risky stocks—brokers may apply bespoke exclusions or higher special margins.
– Some mutual fund purchases (or new positions) until a minimum holding period elapses—many brokers require a 30‑day holding period before certain funds are marginable.
(Details and broker examples summarized from Investopedia.)
Special margin designations and “special” margin requirements
– A security can be marginable but subject to higher required equity (special margin). Brokers set these levels to reflect added risk.
– Example (illustrative): brokers have imposed unusually high maintenance requirements on widely shorted, volatile names (some brokers require 100%+ on long positions and substantially more on shorts for specific tickers). These special levels can change quickly with market conditions.
(Source: Investopedia summary of broker practices)
Practical steps for investors
1. Check your broker’s marginable/non‑marginable list
– Look on the brokerage website or contact support to see current lists and rules for margin eligibility. Brokers update lists frequently.
2. Confirm any holding‑period rules
– Ask whether newly purchased securities (e.g., mutual funds, IPO shares) require a holding period before they count as marginable.
3. Know price and liquidity thresholds
– Ask whether the broker applies minimum per‑share price (e.g., $3 or $5) or volume requirements that could make a security non‑marginable.
4. Plan purchases accordingly
– If you intend to use margin, verify eligibility before buying. If a stock is non‑marginable, fund the purchase in cash to avoid unsettled funds or restrictions.
5. Consider alternatives to margin
– Use cash, diversify to more liquid securities, or buy ETFs that track desired exposures and are marginable.
6. Monitor special margin requirements
– For volatile names, check whether the broker has imposed increased maintenance margins or special liquidation rules.
7. Ask for a re‑review if warranted
– If a security becomes more liquid or price rises, you can request the broker to reassess marginability (approval is at broker discretion).
8. Understand margin calls and forced liquidation
– If you do use margin for eligible assets, know how margin calls are calculated and your broker’s liquidation policy. Non‑marginable holdings will not help meet those calls.
9. Keep documentation
– Save communications from your broker about margin changes or special requirements—these affect risk and settlement.
Risk management and best practices
– Avoid assuming a security will be marginable—verify in advance.
– Maintain excess liquidity to meet unexpected margin calls on marginable positions.
– Use position sizing and stop limits to reduce concentration in high‑volatility stocks.
– Be especially cautious with highly promoted, low‑price, or low‑volume securities; even if marginable now, they can be reclassified quickly.
Where to find more information
– Your brokerage’s margin agreement and help center for up‑to‑date lists and policy details.
– Broker customer service for account‑specific questions or to request reviews.
– Investment education pages from reputable financial sites for general margin rules and risks. (See Investopedia for a general overview of non‑marginable securities.)
Sources
– Investopedia, “Non‑Marginable Securities” (source URL provided by user)
Continuing from above, below are additional sections, expanded examples, practical steps investors can take, and a concluding summary.
Why Brokers Restrict Marginability (More Detail)
– Risk control: Non-marginable or specially restricted securities tend to have higher price volatility, thin trading volumes, or uncertain cash flows. Allowing these to be used as collateral increases the chance of rapid, large losses that could leave the broker exposed.
– Operational burden: Volatile or low-volume securities can trigger frequent margin calls and forced liquidations. Brokers limit these securities to reduce administrative costs and execution risk.
– Regulatory and credit limits: Brokers must follow Federal Reserve and self-regulatory rules (e.g., Regulation T initial margin rules and exchange/FINRA standards) and also manage their own credit exposures. They therefore maintain internal lists that change with market conditions.
More Examples of Non-Marginable Securities
– Recent IPO shares (often non-marginable for a period, or until they meet volatility/liquidity thresholds).
– Penny stocks (commonly defined as below $5 per share) and many OTC (over-the-counter) securities, including Pink Sheets and some OTCBB listings.
– Very low-volume or illiquid small-cap stocks.
– Stocks with active regulatory halts, trading suspensions, or extremely wide bid-ask spreads.
– Certain leveraged or inverse ETFs during times of extreme volatility (some brokers limit marginability).
– Some option positions, complex derivatives, and certain mutual fund purchases (many brokers impose holding-period limits—e.g., some mutual funds are restricted for margin until owned for a set time).
How Non-Marginable Securities Affect Your Account (Concrete implications)
– Cannot be used as collateral: They do not increase your margin buying power.
– Must be fully paid for in cash accounts or with available cash in a margin account.
– Can’t be used to meet margin requirements: If you have other marginable positions and a margin call occurs, your non-marginable securities will not relieve that margin deficit (though brokers may sell them if needed to produce cash).
– Short selling: Typically impossible or heavily restricted for non-marginable securities.
– Liquidity and liquidation: Because they are often illiquid, brokers may avoid using them to cover margin deficits, instead selling other assets first—possibly at unfavorable times.
Practical Steps for Investors Dealing with Non-Marginable Securities
1. Check your broker’s non-marginable/marginable list
– Look on your brokerage’s website or contact customer service to obtain the current list. These lists are updated often.
2. Understand holding-period rules
– Ask whether mutual funds, IPOs, or other securities require a holding period before they are marginable.
3. Avoid overconcentration
– Keep positions in volatile or low-volume names to a modest percentage of your portfolio to reduce liquidity and concentration risk.
4. Maintain adequate cash reserves
– If you plan to trade non-marginable securities, ensure you have sufficient cash to fully fund purchases and to meet settlement requirements (typically T+2 for stocks).
5. Use limit orders and monitor bid/ask spreads
– For illiquid issues, use limit orders to avoid paying wide spreads, and stagger orders to avoid moving the market.
6. Plan exits in advance
– Have contingency plans for liquidating positions if needed. Know what your broker will do in a margin-deficit situation.
7. Avoid shorting non-marginable securities
– Short selling them is often not permitted; check availability and recall risk if you plan shorts.
8. Consider alternatives
– If the goal is exposure to a sector or theme, consider marginable ETFs or larger-cap stocks that meet your risk profile.
9. Re-evaluate before using margin for related positions
– If you hold non-marginable securities but use margin elsewhere, be sure you understand how the broker treats the account as a whole and what would trigger a margin call.
Worked Example Scenarios
Example A — Buying a Non-Marginable IPO
– Situation: A new IPO is listed and your broker flags it as non-marginable. You have $5,000 cash in a margin account and $10,000 in marginable stocks.
– Action: Because the IPO is non-marginable, you must pay the full $5,000 in cash to purchase shares of the IPO. That purchase does not increase your margin buying power. If the IPO falls sharply and your marginable stocks decline enough to trigger a margin call, the IPO shares will not count toward meeting the call unless the broker sells them for cash.
Example B — Special Maintenance Margin (AMC/GME-style)
– Situation: Broker designates a stock as having an elevated maintenance requirement (e.g., 100% maintenance on long positions for AMC). You hold $2,000 worth of AMC long.
– Implication: A 100% maintenance requirement effectively means you must have equity equal to the full market value of that holding—there is no leverage benefit for that position. If the market value declines, you need extra cash or other marginable securities to meet maintenance requirements on the rest of your account.
Example C — Using Marginable Holdings to Support a Non-Marginable Position
– Situation: You hold $20,000 in marginable blue-chip stocks and buy $5,000 of a non-marginable penny stock with cash.
– Implication: The blue-chip stocks provide the only margin collateral. If those blue chips drop and a margin call occurs, the broker may liquidate some of your marginable holdings; it might also sell your non-marginable position to raise cash, even though that position itself cannot be used as margin collateral initially.
Special Considerations for Different Account Types
– Cash accounts: Must fully pay for purchases by settlement; non-marginable securities are standard here because you cannot borrow.
– Margin accounts: Allow borrowing against marginable securities but non-marginable holdings cannot be pledged. Brokers still monitor the entire account and can liquidate assets to cover deficits.
– Retirement accounts (IRAs): Generally do not allow margin borrowing; rules differ for margin in IRAs (often restricted to cash-secured options strategies).
Regulatory and Broker Differences
– Broker policies vary: There’s no single universal list—each broker maintains internal lists and can change marginability or special margin requirements based on price and volatility.
– Regulation T and initial margin: Federal Reserve Regulation T historically sets the initial margin requirement for many equities at 50% (meaning up to 50% can be borrowed on a marginable purchase), but brokers may set stricter requirements. Check your broker’s terms.
– Exchange and FINRA rules: Exchanges and FINRA may impose additional short-sale or margin restrictions in volatile markets.
How to Convert a Non-Marginable Holding to Marginable (Typical Pathways)
– Wait for stability: Brokers often re-evaluate securities after a set time of stable trading and increased liquidity.
– Price thresholds: If a security’s share price rises above a broker’s per-share minimum (e.g., $3–$5), it may become marginable.
– Volume and spread improvement: Increased trading volume and narrower bid-ask spreads make a security more likely to be added to marginable lists.
– Post-IPO seasoning: Some brokers make IPOs marginable only after a defined period or after trading on the secondary exchange for a business day or more.
Checklist Before Trading a Suspect Security
– Is it on your broker’s non-marginable list?
– What is the minimum holding period (if any) for margin eligibility?
– What are the maintenance and initial margin requirements for related securities?
– How liquid is the security (average daily volume, typical spread)?
– Do your position sizing and stop-loss rules account for illiquidity?
– Do you have sufficient cash to fund settlements without tapping margin?
Final Practical Tips
– Keep marginable and non-marginable exposure separate in mental accounting: treat non-marginable positions as cash-funded or long-term holdings.
– Reduce position sizes in names prone to rapid price swings or trading halts.
– Monitor broker communications: marginable status, special requirements, and haircut changes can be announced quickly.
– Use risk management tools: position limits, stop-losses, and diversification help manage the additional risks posed by non-marginable securities.
Concluding Summary
Non-marginable securities are those your broker will not accept as collateral for borrowing in a margin account. They commonly include recent IPOs, low-priced stocks (often below $5), OTC and penny stocks, and very low-volume or highly volatile names. Brokers maintain dynamic lists and impose special margin requirements to protect against rapid losses and administrative burdens. Investors should proactively check their broker’s current lists, keep sufficient cash, size positions conservatively, and have exit plans. Understanding which holdings count toward margin buying power—and which do not—is essential to avoid unexpected liquidity shortfalls, forced liquidations of other positions, or unmet margin calls.
Source: Investopedia, “Non-Marginable Securities” (provided link). Additional guidance referenced from typical brokerage practices and standard margin principles (Regulation T).
[[END]]