In a nutshell, margin trading means buying securities with borrowed money.
As you can imagine, this can be very risky as you are liable to lose not only your money but Webull's money as well.
While the trading platform Webull does allow margin trading, there are a number of important details you should be aware of before getting started.
Margin accounts let you borrow money against the value of the securities in your account.
It allows you to access increased funds without having to sell off all the assets in your current portfolio.
It’s vital to remember that when you use a margin account, you open the door for both major profits and huge losses. This is because it’s possible to lose not only the value of the securities in your cash account, but also the funds you borrowed.
If you start to show losses that are greater than the limit set by the broker, this can lead to a margin call. When this happens, the brokerage platform can force the sale of securities or other assets in your account. The firm can also sell your securities or other assets without contacting you. You are not entitled to a time extension while in a margin call.
You will also pay interest on your margin account. However, margin interest is only charged for leveraged positions held overnight.
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Cash accounts allow you to day trade with money you have readily available. For example, if you have $1,000 settled in a cash account, you can only use up to the amount of $1,000 for trades, not a penny more.
Margin accounts allow you to borrow money against the value of the securities in your account. For example, if you have $2,500 in a margin account, you could use additional margin funds of up to $7,500 supplied by Webull, to purchase $10,000 worth of stock.
It provides the opportunity to leverage your investment to potentially increase your return. At the same time, it presents the risk of magnifying your losses.
Webull is a commission-free stock and ETF trading platform that was launched in 2017. Today, it has nearly 10 million users across the U.S. and around the globe.
When you sign up to buy and sell stocks on Webull, you will not be charged any commission. There are also no minimum account requirements or account maintenance fees, making Webull one of the lowest cost brokers out there today.
A Webull individual margin account allows you to borrow and trade up to 3 times your account equity.
For example, if you have $2,500 in a margin account, you could use additional margin funds of up to $7,500 supplied by Webull, to purchase $10,000 worth of stock.
However, there are account minimums and you will pay interest on all your trades on margin. Keep in mind, margin trading is high risk and not something we recommend. Only take on margin if you fully understand the risks involved.
It's important to understand the potential risks associated with margin trading before you consider taking this step.
Margin trading can make you or break you! It can enhance losses as well as gains. If you plan to use margin, make sure you understand the risks and always monitor your accounts carefully.
Some of the risks of margin trading include:
This type of trading is designed for experienced, active day traders who buy and sell securities multiple times in day.
On the Webull platform - or any other financial app for that matter – buying on margin is not recommended for people who are new to the financial arena and looking for a longer-term, passive income strategy.
If the stocks and options you add to your portfolio on margin start to decline in value, you can lose all of the borrowed money. Also, you can be forced to sell some or all of the securities you own to pay back the loss.
Remember: stock prices can go up and down unpredictably!
Margin trading on Webull, as with any other platform, can be tempting but must always be used carefully. All traders know one of the most important things to do is protect their asset, and trading on margin leaves them vulnerable.
However, if you have done your research, you should now have a good overview of how margin trading works on the commission-free trading app Webull.