What Is Margin Loan Availability?
Let me explain margin loan availability to you directly: it's the amount in your margin account that's currently available for buying securities on margin or for withdrawing cash. In a margin account, your brokerage firm lends you money using the securities you own as collateral.
How Margin Loan Availability Works
You need to understand that margin loan availability shows you how much money in your margin account you can use right now to buy securities on margin or to withdraw. As the value of your securities goes up or down, so does the amount available for loans, because those securities must cover the borrowed amount. If your securities lose value, your margin loan availability decreases accordingly.
This availability comes up in a few key ways: it can represent the dollar amount in an existing account ready for buying more securities, or for new accounts, it's the percentage of your balance available for future margin buys. It also shows how much you can withdraw from an account where your positions serve as collateral.
Expect this availability to shift daily with changes in your margin debt, which includes the securities you've bought. However, it might not account for trades that are pending between the trade date and settlement. Brokerage firms must enforce a maintenance requirement on these accounts, which is a percentage of the total market value of your margined securities. If your availability—basically your account's equity—drops below this maintenance margin, you'll get a margin call. That's a demand to sell some securities or add cash, usually within three days. Rules from the Federal Reserve Board, groups like FINRA, and exchanges govern this, but your firm might set stricter ones.
Important Note on Margin Loan Availability
Remember, margin loan availability increases or decreases with the value of the securities in your margin account. If your equity gets too low, you could face a margin call and need to sell securities to cover the difference.
Example of Margin Loan Availability
Consider this scenario: say you're Bert M., a client at Ernie's Brokerage Firm. You have a margin account with securities in it, and these are held by the firm as collateral for any money you borrow to buy more securities or to withdraw.
The borrowed money is your margin loan, and the amount you can access at any time is the margin loan availability, determined by the current value of your pledged securities.
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