Margin Use and Dividend Implications in Trading
Here’s a summary of the main problem and discussed solutions from the conversation:
- Main Problem: User N₿Aneil is unsure about how dividends and margin work in their brokerage account, particularly whether dividends pay down margin debt or are available for withdrawal.
- Solution: Fidelity representatives clarified that any cash deposited, including dividends received, will first be applied against the margin debit.
- Solution: Users can still withdraw dividends from their account; however, these withdrawals will not contribute to paying down the existing margin debit.
- Solution: For margin-related inquiries, Fidelity suggested using their “Margin Calculator” to assess margin requirements and other related details.
This should help clarify how dividends and margin work within the brokerage account.
Here’s the full thread
I’m going to throw out an example.
Lets say my brokerage account has a value of $10,000 and I have $0 of cash in that account. Then I used $1,000 of margin to buy some ETFs. When I get paid a dividend, will it go towards the $1,000 of margin to pay it down, or will it stay as cash in my account?
Does the margin sitting in my buying power accrue interest? Or is it only the margin that I’m using?
Hello there @N₿Aneil. Thanks for stopping in. I’ll answer your questions.
For question 1, if margin debt exists, any cash you deposit in the account (including dividends received) or proceeds from the sale of securities typically will first be applied against the margin debit.
For question 2, only the margin being used accrues interest.
Please let us know if you have additional questions. 🟢
Thank you
Does that mean I can’t withdraw any dividends until the margin is paid off? Or is there a workaround?
For example, Robinhood has a feature called “Margin Spending”. I can enable that and withdraw cash even if I’m using margin. I’m hoping fidelity has this too
Hey there, @N₿Aneil. Happy to answer this for you.
You can still withdraw the dividend from your account, it just won’t go to paying down any margin debit that exists. You can read more about margin by clicking the link below.
Margin FAQs: https://www.fidelity.com/trading/faqs-margin
Let us know if you have additional questions. 🟢
Thank you
Can margin be used in a Roth IRA?
Hey, @N₿Aneil. I’m happy to answer your question.
In eligible IRAs, we offer what’s known as “Limited Margin.” Limited margin means you can use unsettled cash proceeds in your IRA to trade actively without worrying about cash trading violations. That said, limited margin doesn’t allow you to borrow against the value of existing holdings to create cash or margin debits, sell securities short, or establish naked options positions like in a non-retirement account. You must maintain a minimum equity of $25,000 or more in the IRA and other requirements described in the link below to enable Limited Margin.
Limited margin trading: https://www.fidelity.com/learning-center/trading-investing/trading/limited-margin-trading-IRA
After learning about these features, if you wish to apply, you can do so by following these simple steps on our website after logging in:
1. Choose “Accounts & Trade,” then select “Account Features”
2. Click “Brokerage & Trading” then “Add” next to “Margin” or “Limited Margin” for an IRA
If you have additional questions about this or other account features, we’ll be happy to help! 🟢
Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read the Characteristics and Risks of Standardized Options. Supporting documentation for any claims, if applicable, will be furnished upon request.
Thanks
When submitting orders for options, I have the option to choose from margin type and cash type. What’s the difference between the two?
And when I set up a box spread, does fidelity as a broker recognize it as a box spread or do they recognize it as 1 call credit spread and 1 put credit spread?
Thanks for the follow-up @N₿Aneil. We’ll get you answers today.
First, the difference in the trade ticket is giving you a choice to place a trade in type margin or type cash. A margin account lets you leverage securities you already own as collateral for a loan to buy additional securities. In a margin-enabled account, the “M” symbol next to the lots on your positions page indicates that the shares are held in type “margin.” With that said, simply holding securities in margin does not mean you’ve created a margin loan or are being charged margin interest.
All securities purchased in a margin account will be automatically paid for from your core position first, followed by any money market positions held in your account. Only after these money market positions are fully depleted will margin be used to pay the balance of the purchase.
However, you can choose to place orders in type “cash,” even in a margin-enabled account. With that said, there are a few things to keep in mind about doing so. The first is that if autojournalling is enabled, eligible assets will autojournal to type margin upon settlement. Additionally, trading in type cash means your trades are subject to cash trading rules, so you’ll want to be mindful of potential Good Faith Violations (GFVs) or other cash trade violations. You can review more about this through the link below.
Avoiding Cash Trading Violations: https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations
Now, let’s switch over by defining a box spread to ensure we are talking about the same thing. A box spread is considered a complex spread options strategy with a neutral market outlook. It consists of a four-legged trade with a long call, a short call, a long put, and a short put, all for the same security. Aside from the four legs, a few additional rules generally classify a box spread.
The strike prices of the long call and short put must be equal
The strike prices of the short call and the long put must be equal
A long box spread occurs when the strike price of the long call and the short put is less than the strike price of the short call and the long put. To calculate the requirements for them, follow the equation below.
(Premium price of long x 100 shares x number of contracts) + (Premium price of long x 100 shares x number of contracts) – (Premium price of short x 100 shares x number of contracts) – (Premium price of short x 100 shares x number of contracts)
A short box spread occurs when the strike price of the long call and the short put is greater than the strike price of the short call and the long put. This equation can be used to calculate the requirements.
(Difference in strike prices x 100 shares x number of contracts)
Please keep in mind that to protect our clients from non-apparent option risks, Fidelity no longer offers box spread strategies on our Multi-Leg Option ticket. That said, if you choose to implement a box spread strategy over multiple order tickets, the margin requirements that our system will have will depend on how the strategy is implemented and what the premiums are.
One resource we have that you’ll find useful is our margin calculator. This tool allows you to map out hypothetical trades to view the equity requirements and impact on an account. You can access the Margin Calculator at the bottom of the “Balances” tab of your margin account. You can toggle through the tabs to get a tour of everything this tool offers.
Trading FAQs: Margin: https://www.fidelity.com/trading/faqs-margin
Thanks for the question. If we can help answer anything else or if you would like clarification, please let us know.
Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read the Characteristics and Risks of Standardized Options (https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document). Supporting documentation for any claims, if applicable, will be furnished upon request. 🟢
Thanks for the answers. For clarification, I cannot submit a single order to open a box spread on fidelity?
Hello again, @N₿Aneil. You might be able to if you have the appropriate option level and the account can support it. However, we recommend speaking with our Trading Strategy Desk or Active Trader Services team to get the specifics. 🟢
Hi @FidelityShawn . Sounds good I’ll do that. I appreciate all your answers
You are most welcome, @N₿Aneil. I’m glad we could help out. 🟢
When I receive a net credit from an options trade, can I use that money to buy stocks or ETFs right away? Or do I need to wait for the money to settle?
Are spot Bitcoin ETFs like IBIT and FBTC considered marginable securities?
It’s been ten days since I deposited my funds, they cleared my bank 7 days ago. When I try to trade penny stocks I get a message that stocks under $3.00 need to completely settle. Is this typical? It says they should clear completely in 4-6 days. Thanks for any help.
Yes, that is normal. Wait 4-6 days.
Hey there, @N₿Aneil! Thanks for your questions regarding purchasing investments using proceeds and whether the mentioned funds are marginable.
Generally, you may purchase additional securities using proceeds immediately after execution in an unrestricted account. A warning message will appear on buy orders when the cash used for that trade is unsettled to alert investors to this rule. Check out the resource below to learn more about these violations and how to avoid them.
Avoiding cash account trading violations: https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations
As for whether the mentioned funds are marginable, I can confirm that both the iShares Bitcoin Trust ETF (IBIT) and the Fidelity Wise Origin Bitcoin Fund (FBTC) are marginable. That said, it’s important to keep in mind that certain securities, such as mutual funds and some exchange-traded funds (ETFs), are not marginable until after 30 days.
You can learn more about trading with margin here: https://www.fidelity.com/trading/margin-loans/how-it-works
Please let us know if more questions come up. We’re happy to help! 🟢
Thanks. I was looking around and I couldn’t find a way to see the margin maintenance percentage for IBIT after the 30 day period. Where can I find this information?
The only way I know is by owning it already, then it shows
But I can’t find it without owning the ETF
Great question, @N₿Aneil. I’m happy to point you in the right direction.
Our margin calculator, which can be accessed from your margin-enabled account, can help you determine the margin requirements for securities you’re considering.
You can find this tool by following these steps on our website once logged in:
1. Choose “Accounts & Trade,” then select “Portfolio”
2. Select the “Balances” tab and click the applicable account on the left
3. Scroll down to click the “Margin Calculator” link
I’ll also provide step-by-step instructions on how to utilize this tool below.
Margin Calculator Step-By-Step Instructions (PDF): https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/Margin_Calculator_Tour.pdf
Don’t hesitate to follow up if more questions arise. We’re here to help! 🟢
Thank you!
Am I charged margin interest when I sell a put with non-margin buying power?
These would be naked puts, not cash-secured puts to be specific
Hello again, @N₿Aneil. I’m digging the Jack-o’-lantern.
If you want to avoid creating a margin debit, check your account’s “Available to trade without margin impact” balance. 🟢
Lol thanks. I also have another question.
Let’s say I buy 10 shares of VTI with my own cash and 10 shares of VTI with margin. Would the shares show up separately in my account or would they be combined?
The reason I ask is because eventually I would want to sell the 10 shares that I bought with margin but keep the 10 shares I bought with my own cash. If they combine, it wouldn’t be possible to do this unless I bought the margined shares first because of FIFO. But in this case, I bought the cash shares first
Hello again, @N₿Aneil. In the scenario you provided, the shares held in type cash would be in a separate line item from the shares held in type margin. 🟢
Does Fidelity allow clients to withdraw any of their margin from their account?
It sounds like you’re referring to withdrawing cash in the form of a margin loan. You can learn more about that process at the link below.
Margin Loans: https://www.fidelity.com/trading/margin-loans/overview 🟢
Thank you