Marginable securities and non-marginable are defined by their ability to be traded on margin accounts. Marginable securities are securities that can be traded in a margin account. Conversely, non-marginable referees to securities that are not allowed to be traded on margin. Therefore securities that may be pledged as collateral in a margin account are known as marginable securities. The remaining securities can be used to meet the initial and maintenance margin requirements. Traders and investors can borrow against margin securities. Securities that cannot be traded in a margin account, also cannot be offered as collateral in a margin account.
What are marginable securities?
Stocks, bonds, futures, and other assets that may be traded on margin are referred to as marginable securities. Securities traded on margin are enabled by a brokerage that loans the funds the customer margin for trades.
The regulations determining which securities can be traded on margin, and which cannot are outlined in the Federal Reserve's Regulation T and Regulation U. The regulation process also involves self-regulating bodies such as the New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA). Individual brokers may set their own standards when it comes to defining securities that can be traded on margin. However, they must be as stringent as those imposed by law.
What is non-marginable security?
Non-marginable securities may not be traded on margin at any brokerage or financial institution. They must be entirely funded by the investor's equity. Most brokerage companies maintain internal lists of securities that are not allowed to be traded on margin. It is dependent on its own internal regulations and can be dependent on volatility in the market. Brokers do not allow investors to trade non-marginable securities on margin.
These lists will be updated in the future to reflect changes in stock prices and volatility. A Non-marginable security does not increase an investor's margin purchasing power. The primary objective of keeping such assets out of the hands of margin investors is to reduce risk. While minimizing the administrative expenses associated with excessive margin calls on what are typically volatile securities.
Recent initial public offerings (IPOs) are an example of securities that cannot be traded on margin. Due to a Federal Reserve Board mandate, over-the-counter bulletin board (OTCBB) stocks and penny stocks are some examples of securities that are not allowed to be traded on margin.
The margin requirement for non-marginable securities is 100%. This means that investors need to have the full amount to be able to trade those securities. Securities that cannot be traded on margin, also cannot be used as a margin requirement. The broker will not lend them money to trade those securities. Certain equities, however, have different margin requirements.
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