Adding margin lending to a Fidelity after-tax brokerage account

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FIREchief
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by FIREchief »

alex_686 wrote: Wed Mar 17, 2021 10:09 am In order to margin a brokerage has to lend out your shares. So that is tied together. Rehypothecation is a mechanic behind securities lending.
Is this true in all cases, or just some cases?

If I have a margin account that holds only mutual funds, and I take a loan using margin, are you saying that Fidelity would automatically loan out some of my mutual fund shares? This is inconsistent with a number of other postings that I've found here on the forum (via search) and beyond.

I was assuming that if they're charging me 8.325% interest on a small loan, that they would have a ready source of cash at less than that rate which would allow them to profit from my margin borrowing without actually having to lend out some of my securities as an offset (they would still have access to them as loan collateral either way). Am I missing something here? Thanks.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by alex_686 »

FIREchief wrote: Thu Mar 18, 2021 1:48 pm
alex_686 wrote: Wed Mar 17, 2021 10:09 am In order to margin a brokerage has to lend out your shares. So that is tied together. Rehypothecation is a mechanic behind securities lending.
Is this true in all cases, or just some cases?

If I have a margin account that holds only mutual funds, and I take a loan using margin, are you saying that Fidelity would automatically loan out some of my mutual fund shares? This is inconsistent with a number of other postings that I've found here on the forum (via search) and beyond.

I was assuming that if they're charging me 8.325% interest on a small loan, that they would have a ready source of cash at less than that rate which would allow them to profit from my margin borrowing without actually having to lend out some of my securities as an offset (they would still have access to them as loan collateral either way). Am I missing something here? Thanks.
Not automatically, but they would have strong casual reasons.

Knowing how and why brokerages structure their balance sheet, I would make the opposite assumption that they would not have the cash. And if they did they would not want to deploy their capital here. It introduces duration risk and funding risk. Or maybe they would.

That being said, how could you tell? You would still get a qualified dividend assuming the mutual fund was only hypotheced (lent to the bank), and not rehypothecated (bank lends it out to a 3rd party).
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by FIREchief »

alex_686 wrote: Thu Mar 18, 2021 2:23 pm Not automatically, but they would have strong casual reasons.

Knowing how and why brokerages structure their balance sheet, I would make the opposite assumption that they would not have the cash. And if they did they would not want to deploy their capital here. It introduces duration risk and funding risk. Or maybe they would.

That being said, how could you tell? You would still get a qualified dividend assuming the mutual fund was only hypotheced (lent to the bank), and not rehypothecated (bank lends it out to a 3rd party).
Thanks. I guess that last part wasn't clear to me. It would seem that individual stock shares would be more applicable for securities lending and borrowing than broad market index funds, but then again maybe not. This is all very interesting. 8-)
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by alex_686 »

FIREchief wrote: Thu Mar 18, 2021 3:44 pm Thanks. I guess that last part wasn't clear to me. It would seem that individual stock shares would be more applicable for securities lending and borrowing than broad market index funds, but then again maybe not. This is all very interesting. 8-)
The flavor of choice is individual stocks and ETFs - which are still stocks. Like I said upthread, mutual funds can be lent out for short sales but it is very rare. Treasuries are also popular, but corporate bonds are not.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

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Bumping an old thread....

I finally got around to adding margin to my Fidelity after-tax brokerage account. We filled out and signed the application and uploaded it through their website two days ago. Yesterday the on-line status showed "complete." That account currently has a modest amount of cash and a large holding of a single Fidelity mutual fund. When I access the balances tab for that account, under "Available to Withdraw" it indicates "Cash Only" and "Cash & Borrowing Margin" amounts equal only to the cash position. Is there something further that I need to do to enable taking a cash loan/withdrawal against margin? Thanks.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by sc9182 »

FIREchief wrote: Sat Jul 17, 2021 1:53 pm Bumping an old thread....

I finally got around to adding margin to my Fidelity after-tax brokerage account. We filled out and signed the application and uploaded it through their website two days ago. Yesterday the on-line status showed "complete." That account currently has a modest amount of cash and a large holding of a single Fidelity mutual fund. When I access the balances tab for that account, under "Available to Withdraw" it indicates "Cash Only" and "Cash & Borrowing Margin" amounts equal only to the cash position. Is there something further that I need to do to enable taking a cash loan/withdrawal against margin? Thanks.
It takes 2-4 business days to get most details start to fill up.

There is a margin calculator there as well - which you can use., and see how intended security purchases affect available margin ..

I am not sure margin rate will populate until you start using margin yet .. (even then it could take 2-4 days for it to start showing up interest rate & amount details ..)
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by FIREchief »

sc9182 wrote: Sat Jul 17, 2021 2:39 pm
FIREchief wrote: Sat Jul 17, 2021 1:53 pm Bumping an old thread....

I finally got around to adding margin to my Fidelity after-tax brokerage account. We filled out and signed the application and uploaded it through their website two days ago. Yesterday the on-line status showed "complete." That account currently has a modest amount of cash and a large holding of a single Fidelity mutual fund. When I access the balances tab for that account, under "Available to Withdraw" it indicates "Cash Only" and "Cash & Borrowing Margin" amounts equal only to the cash position. Is there something further that I need to do to enable taking a cash loan/withdrawal against margin? Thanks.
It takes 2-4 business days to get most details start to fill up.

There is a margin calculator there as well - which you can use., and see how intended security purchases affect available margin ..

I am not sure margin rate will populate until you start using margin yet .. (even then it could take 2-4 days for it to start showing up interest rate & amount details ..)
Thank you. I appreciate the info. I did see the calculator, but I won't be using margin for anything other than short term loans for cash liquidity. I used to have a HELOC for this, but that went away when we became renters. 8-) I won't need to use it for another month or two. Just getting my feet wet. :happy
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by Chip »

As I look at my Account Positions I see an M in a circle next to the share quantity on the two positions I have that are available to margin. That's in the beta view; in the standard view it says Margin underneath the share quantity. In my Balances tab I show Margin Buying Power significantly larger than Non-margin buying power. Ditto for Cash & Borrowing Margin available to withdraw.

I think, but am not sure, that you will have to tell Fido to journal the security into the margin side of your account, unless that was part of your margin application. Otherwise it will remain in the cash side. I know that I have called them in the past and have had them move things from one side to the other.

Again, I'm not sure about any of this so take it with a grain of salt.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

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Chip wrote: Sat Jul 17, 2021 3:16 pm As I look at my Account Positions I see an M in a circle next to the share quantity on the two positions I have that are available to margin. That's in the beta view; in the standard view it says Margin underneath the share quantity. In my Balances tab I show Margin Buying Power significantly larger than Non-margin buying power. Ditto for Cash & Borrowing Margin available to withdraw.

I think, but am not sure, that you will have to tell Fido to journal the security into the margin side of your account, unless that was part of your margin application. Otherwise it will remain in the cash side. I know that I have called them in the past and have had them move things from one side to the other.

Again, I'm not sure about any of this so take it with a grain of salt.
Thanks Chip. I'll give it a few days to settle. I would hope that I could make securities available for margin without having to call them. It really won't matter in the end. The application did not include any of these details.

Is it possible to draw a loan on margin and leave the cash in the account (vs. having to withdraw it to a bank account, etc.)?
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by Chip »

FIREchief wrote: Sat Jul 17, 2021 3:35 pm Is it possible to draw a loan on margin and leave the cash in the account (vs. having to withdraw it to a bank account, etc.)?
I've never drawn a margin loan so don't know. But why should ignorance stop me? :D

I can't think of a way to make the loan happen without somehow using more cash than you have. I suppose you could buy a T bill which you could later convert to cash. But I think as soon as that settles it will pay of the loan balance automatically.

Rampant speculation is fun! :P
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Re: Adding margin lending to a Fidelity after-tax brokerage account

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Chip wrote: Sat Jul 17, 2021 3:42 pm
FIREchief wrote: Sat Jul 17, 2021 3:35 pm Is it possible to draw a loan on margin and leave the cash in the account (vs. having to withdraw it to a bank account, etc.)?
I've never drawn a margin loan so don't know. But why should ignorance stop me? :D

I can't think of a way to make the loan happen without somehow using more cash than you have. I suppose you could buy a T bill which you could later convert to cash. But I think as soon as that settles it will pay of the loan balance automatically.

Rampant speculation is fun! :P
Yep. I'm using this as much as a learning experience than for any real need to borrow against my equity holdings. The account has previously had an automatic withdrawal to my checking account that was set up to sell equities automatically when there was insufficient cash. That was intentional and worked great. Fido told me that with margin activated that it would still sell the equities. If I remove the feature to automatically sell non-money market holdings, I'm not sure if it would draw on margin if the cash balance were insufficient or not. I'll find out soon enough.
Last edited by FIREchief on Tue Jul 20, 2021 5:38 pm, edited 2 times in total.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by MarkerFM »

FIREchief wrote: Sat Jul 17, 2021 3:35 pm
Chip wrote: Sat Jul 17, 2021 3:16 pm As I look at my Account Positions I see an M in a circle next to the share quantity on the two positions I have that are available to margin. That's in the beta view; in the standard view it says Margin underneath the share quantity. In my Balances tab I show Margin Buying Power significantly larger than Non-margin buying power. Ditto for Cash & Borrowing Margin available to withdraw.

I think, but am not sure, that you will have to tell Fido to journal the security into the margin side of your account, unless that was part of your margin application. Otherwise it will remain in the cash side. I know that I have called them in the past and have had them move things from one side to the other.

Again, I'm not sure about any of this so take it with a grain of salt.
Thanks Chip. I'll give it a few days to settle. I would hope that I could make securities available for margin without having to call them. It really won't matter in the end. The application did not include any of these details.

Is it possible to draw a loan on margin and leave the cash in the account (vs. having to withdraw it to a bank account, etc.)?
In my experience, mutual fund purchases have to stay in cash account type for 30 days before moving to margin type. Once it was more than 30 days and it hadn't moved so I had to call them. Not sure if there is a 30-day wait for new margin accounts where the mutual fund has been there.

I don't think it is possible to draw and keep the cash in the account (unless you bought something that was not a core position), nor do I immediately see why you would want to do that.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

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MarkerFM wrote: Sat Jul 17, 2021 4:15 pm I don't think it is possible to draw and keep the cash in the account (unless you bought something that was not a core position), nor do I immediately see why you would want to do that.
I'll give you one example. A person has a monthly auto withdrawal to a checking account and wants to stage cash through margin loans versus sales of equity holdings. A work around would likely be to use margin to buy a money market fund, that would be auto-sold to cover cash shortages.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by texas lawdog »

I've done exactly what you are talking about by transferring all of my taxable investment accounts from Fidelity (which had an interest rate of 8.325%) to M1 which currently has a margin interest rate of 2%. I enjoy having liquidity options available and with the recent announcement by Wells Fargo closing lines of credit without any advance notice, I'd think more people should explore this option.

A few things about M1 margin:
- Was available automatically without needing to fill out any additional paperwork when investments > $5K and grows with your portfolio
- The margin credit allowed is around 35% of the portfolio value.
- You didn't have to use the margin for additional investments, you can use it for whatever you want
- You can pay it back whenever you want; monthly interest is added automatically to the loan balance if you don't want to pay anything.

Good luck.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by MarkerFM »

FIREchief wrote: Sat Jul 17, 2021 4:19 pm
MarkerFM wrote: Sat Jul 17, 2021 4:15 pm I don't think it is possible to draw and keep the cash in the account (unless you bought something that was not a core position), nor do I immediately see why you would want to do that.
I'll give you one example. A person has a monthly auto withdrawal to a checking account and wants to stage cash through margin loans versus sales of equity holdings. A work around would likely be to use margin to buy a money market fund, that would be auto-sold to cover cash shortages.
I'm pretty sure that if your checking account is at Fidelity and you have overdraft enabled, an auto payment without enough cash in the checking account would cause the brokerage account to be tapped and if there is not sufficient cash there it would automatically draw on the margin line.

Otherwise, you could manually move funds to the checking account and if there is no cash in the brokerage, the margin loan draw would happen then.

I should add that Fidelity's rates are negotiable, and reminding them of competitors' rates helps make your advisor's case to their managers.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

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MarkerFM wrote: Sat Jul 17, 2021 5:19 pm
FIREchief wrote: Sat Jul 17, 2021 4:19 pm
MarkerFM wrote: Sat Jul 17, 2021 4:15 pm I don't think it is possible to draw and keep the cash in the account (unless you bought something that was not a core position), nor do I immediately see why you would want to do that.
I'll give you one example. A person has a monthly auto withdrawal to a checking account and wants to stage cash through margin loans versus sales of equity holdings. A work around would likely be to use margin to buy a money market fund, that would be auto-sold to cover cash shortages.
I'm pretty sure that if your checking account is at Fidelity and you have overdraft enabled, an auto payment without enough cash in the checking account would cause the brokerage account to be tapped and if there is not sufficient cash there it would automatically draw on the margin line.

Otherwise, you could manually move funds to the checking account and if there is no cash in the brokerage, the margin loan draw would happen then.

I should add that Fidelity's rates are negotiable, and reminding them of competitors' rates helps make your advisor's case to their managers.
Thanks, but my checking account is not at Fidelity. I don't use auto-payments from checking accounts, as I strongly prefer pulls from creditors. That said, my expenses are hyper-predictable, so a fixed monthly transfer (auto withdrawal) from Fido to my Bank is more than sufficient to keep my checking account funded.

Also, I was just providing that example in response to your previous post. It may not apply to me in the near future (if ever).
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Re: Adding margin lending to a Fidelity after-tax brokerage account

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FIREchief wrote: Sat Jul 17, 2021 1:53 pm Bumping an old thread....

I finally got around to adding margin to my Fidelity after-tax brokerage account. We filled out and signed the application and uploaded it through their website two days ago. Yesterday the on-line status showed "complete." That account currently has a modest amount of cash and a large holding of a single Fidelity mutual fund. When I access the balances tab for that account, under "Available to Withdraw" it indicates "Cash Only" and "Cash & Borrowing Margin" amounts equal only to the cash position. Is there something further that I need to do to enable taking a cash loan/withdrawal against margin? Thanks.
For historical reasons I had a brokerage and cash management account with Fidelity, and all my equities were in the cash management account. When I looked at a margin loan to float some expenses during a house sale and purchase, I enabled margin in brokerage and transferred in my equities. Some combination of that triggered a 30 day wait period, at the end of 30 days my margin positions started showing up.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

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mrb09 wrote: Sat Jul 17, 2021 5:52 pm
FIREchief wrote: Sat Jul 17, 2021 1:53 pm Bumping an old thread....

I finally got around to adding margin to my Fidelity after-tax brokerage account. We filled out and signed the application and uploaded it through their website two days ago. Yesterday the on-line status showed "complete." That account currently has a modest amount of cash and a large holding of a single Fidelity mutual fund. When I access the balances tab for that account, under "Available to Withdraw" it indicates "Cash Only" and "Cash & Borrowing Margin" amounts equal only to the cash position. Is there something further that I need to do to enable taking a cash loan/withdrawal against margin? Thanks.
For historical reasons I had a brokerage and cash management account with Fidelity, and all my equities were in the cash management account. When I looked at a margin loan to float some expenses during a house sale and purchase, I enabled margin in brokerage and transferred in my equities. Some combination of that triggered a 30 day wait period, at the end of 30 days my margin positions started showing up.
Thanks. In my case, the single mutual fund position has been there since last March.

Fun fact of the day: FZROX has gained 70.85% since 3/30/20. Wowsa!! :mrgreen:
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Re: Adding margin lending to a Fidelity after-tax brokerage account

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AlohaJoe wrote: Wed Mar 17, 2021 8:39 pm
MarkerFM wrote: Wed Mar 17, 2021 4:45 pm
Chip wrote: Wed Mar 17, 2021 7:50 am 2. If qualified dividends are paid on a loaned security you'll receive "cash-in-lieu" instead, which is ordinary income. I haven't checked recently, but I believe Fidelity compensates you for the potential extra taxes and assumes the maximum federal tax rate.
I but I don't recall ever having a payment in lieu [...] It is never a replacement for the entire dividend, just a portion.
I've had the same experience (at IBKR). I've had a margin balance of 7-10% of my portfolio for 2+ years and never received a payment-in-lieu. I also take part in securities lending and only once did I receive a payment-in-lieu instead of the actual dividend. And it wasn't the entire dividend, it was like $12 or something; I guess there were 5 shares they couldn't get back in time for the dividend for some reason. The brokers are pretty good about getting shares back around dividend times, though no guarantees obviously.

I expect that if you have multiple holdings (i.e. not just a single ETF or mutual fund in the account) then the broker's fancy computers can rotate what securities are pledged for the margin (on a daily basis even) so that pledged securities are never the ones that have dividends coming today. But I don't actually know how it all really works and I'm just making stuff up :mrgreen:
At IBKR, I've received payment in lieu for the dividends on the shares of IBKR that have not vested yet.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by logos »

I was able to get Fidelity to drop their margin rate. 2.75% is the best they would do. Still not as good as IB, but good enough for what I anticipate is just a short term use for me.

Initially the rep told me that they simply do not negotiate those rates (my account at the time was maybe 400k - I'm sure the larger the account the more likely you are to get a different response). Then I offered to transfer my vanguard account to fidelity and he totally changed his tune - well actually that is a different department and sometimes they do negotiate rates if you bring additional money. I brought over about 500k and for that they dropped my rate.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

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logos wrote: Sun Jul 18, 2021 12:56 pm I was able to get Fidelity to drop their margin rate. 2.75% is the best they would do. Still not as good as IB, but good enough for what I anticipate is just a short term use for me.

Initially the rep told me that they simply do not negotiate those rates (my account at the time was maybe 400k - I'm sure the larger the account the more likely you are to get a different response). Then I offered to transfer my vanguard account to fidelity and he totally changed his tune - well actually that is a different department and sometimes they do negotiate rates if you bring additional money. I brought over about 500k and for that they dropped my rate.
Good to know. I'll take a stab at that just for grins. Might save me $50 - $100.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

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Chip wrote: Sat Jul 17, 2021 3:16 pm As I look at my Account Positions I see an M in a circle next to the share quantity on the two positions I have that are available to margin. That's in the beta view; in the standard view it says Margin underneath the share quantity. In my Balances tab I show Margin Buying Power significantly larger than Non-margin buying power. Ditto for Cash & Borrowing Margin available to withdraw.

I think, but am not sure, that you will have to tell Fido to journal the security into the margin side of your account, unless that was part of your margin application. Otherwise it will remain in the cash side. I know that I have called them in the past and have had them move things from one side to the other.

Again, I'm not sure about any of this so take it with a grain of salt.
I called Fidelity today. As you suggested, they had to Journal my mutual fund balance from the cash side to the margin side. The application didn't provide an option to request this. The rep told me that usually they will do that when they process the application, but apparently not always. He did indicate that it won't be entirely complete until their over-night processing cycle completes.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by Chip »

FIREchief wrote: Mon Jul 19, 2021 3:29 pm As you suggested, they had to Journal my mutual fund balance from the cash side to the margin side. The application didn't provide an option to request this.
Thanks for the update. It's nice to know my memory hasn't completely failed!
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by Dagwood »

Surprised that I am reading about margin lending on this forum. The risks discussed here are being underestimated. See the below for some additional perspective.

https://www.finra.org/investors/alerts/ ... rgin-error.

Older but still relevant:

https://www.sec.gov/reportspubs/investo ... inhtm.html.

We have been in a bull market so long people are forgetting basic lessons. That tells me we are due for a more serious and longer term correction.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by FIREchief »

Dagwood wrote: Tue Jul 20, 2021 5:24 am Surprised that I am reading about margin lending on this forum. The risks discussed here are being underestimated. See the below for some additional perspective.
Apparently you didn't read this entire short thread to understand my purpose for adding margin and why I started the thread. Please don't take this off into that other discussion, as it has nothing to do with my situation (or the situations of several others who responded that they are in the same position as I am).

It's right there in the original post:
I used to maintain a zero balance HELOC as a source of liquidity, but no longer own a house. I'm thinking of setting up one of my Fidelity after-tax accounts to allow margin lending. This would not be for any kind of leveraged trading, but only for an immediate source of short term liquid cash if/when needed.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

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Chip wrote: Tue Jul 20, 2021 4:07 am
FIREchief wrote: Mon Jul 19, 2021 3:29 pm As you suggested, they had to Journal my mutual fund balance from the cash side to the margin side. The application didn't provide an option to request this.
Thanks for the update. It's nice to know my memory hasn't completely failed!
Yep. The cash borrowing power showed up today and I'm going to test drive it with a small bank transfer that slightly exceeds my current cash balance. It's all just learning at this point.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by logos »

The way I do it is that I have margin on one account. I transfer cash from that account to my cash management account that is attached to my bank via ACH and ATMs via the fidelity card.

That way an ATM transaction or ACH pull will not get any money unless I have already gone online and transferred money from the brokerage account to the CMA.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by Dagwood »

FIREchief wrote: Tue Jul 20, 2021 11:09 am
Dagwood wrote: Tue Jul 20, 2021 5:24 am Surprised that I am reading about margin lending on this forum. The risks discussed here are being underestimated. See the below for some additional perspective.
Apparently you didn't read this entire short thread to understand my purpose for adding margin and why I started the thread. Please don't take this off into that other discussion, as it has nothing to do with my situation (or the situations of several others who responded that they are in the same position as I am).

It's right there in the original post:
I used to maintain a zero balance HELOC as a source of liquidity, but no longer own a house. I'm thinking of setting up one of my Fidelity after-tax accounts to allow margin lending. This would not be for any kind of leveraged trading, but only for an immediate source of short term liquid cash if/when needed.
Right, yes I can read. But if the market craters while you have a large loan outstanding and you cannot meet a margin call, you are going to get hosed. The BD doesn't care why you borrowed the money, i.e., leveraged trading vs. ST liquidity, they have extensive rights under those agreements to sell you out with very little time for you to meet the call. Unless you have enormous cash needs, you could accomplish the same thing with a loan against a 401K in most plans and the $50k limit would provide a limiter against any temptation to keep borrowing. And the interest rate will be very low as well. Better yet, just hold on to more cash or build up a liquid, stable position in a tax efficient taxable account and only draw it down if really needed. It seems like you've taken offense, but in my line of work I have seen the downside of these accounts and when it gets ugly, it gets really ugly. Good luck in whatever you do.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by Chip »

Dagwood wrote: Tue Jul 20, 2021 1:58 pm Right, yes I can read. But if the market craters while you have a large loan outstanding and you cannot meet a margin call, you are going to get hosed.
I seriously doubt if FIREchief will be borrowing enough against his assets where a margin call is even a remote possibility. At least that's what I get from reading the thread.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by MrJedi »

I've been looking at adding margin to my Fidelity account for similar reasons (looking at buying a new house before selling old house, then immediately repaying the margin after selling the old house, prefer not to sell out of taxable due to large embedded gains). For reasons unrelated, I strongly prefer not to transfer to IBKR though the rates are attractive. What is the method to negotiate rates at Fidelity and is it realistic to get a better rate with only ~$100k taxable account?

The other option I'm strongly considering instead is a 401k loan, though I haven't done one of those before either so seems a little intimidating.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by alex_686 »

MarkerFM wrote: Sat Jul 17, 2021 4:15 pm In my experience, mutual fund purchases have to stay in cash account type for 30 days before moving to margin type. Once it was more than 30 days and it hadn't moved so I had to call them. Not sure if there is a 30-day wait for new margin accounts where the mutual fund has been there.
Technically, the funds have to be held 30 days. I don't know how the system is programed.

The reason is that you are not allowed to margin IPOs and other newly issued stock for 30 days. The Fed doesn't want leveraged speculation in that area.

Technically, any purchase of a mutual fund is a purchase of a newly issued stock. After all, your are purchasing new shares from the fund company.
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FIREchief
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by FIREchief »

Chip wrote: Tue Jul 20, 2021 2:35 pm
Dagwood wrote: Tue Jul 20, 2021 1:58 pm Right, yes I can read. But if the market craters while you have a large loan outstanding and you cannot meet a margin call, you are going to get hosed.
I seriously doubt if FIREchief will be borrowing enough against his assets where a margin call is even a remote possibility. At least that's what I get from reading the thread.
Thank you. You are absolutely correct. I'm not sure why that other poster felt compelled to warn me about how bad I'm going to get "hosed." He started by questioning why Bogleheads would even be discussing margin (implying perhaps that we're mostly smart enough not to abuse margin), but then felt compelled to warn me that I wasn't smart enough to not abuse margin. :oops:

I don't recall asking questions anywhere within this thread (which I started) regarding the wisdom of walking into the Margin Casino in the first place. But then again, I'm a guy who can go to the free steak dinners and walk away with nothing other than tasty memories and a full stomach. I did google some of the other (very infrequent) threads on Fidelity Margin and at least one started with the OP begging for people not to try to turn it into a discussion of the evils and stupidity of margin borrowing. I guess now I understand why. I do appreciate your inputs Chip.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by Gadget »

Did you have to unfreeze your credit to turn on margin on your Fidelity account? Or can they just look at your current taxable assets within the account?
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by alex_686 »

Gadget wrote: Tue Jul 20, 2021 3:42 pm Did you have to unfreeze your credit to turn on margin on your Fidelity account? Or can they just look at your current taxable assets within the account?
The industry standard is to just use the taxable assets in the account.

I used to work on the margin desk. I can't see how a credit report could be used or what value it would add.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by sc9182 »

Gadget wrote: Tue Jul 20, 2021 3:42 pm Did you have to unfreeze your credit to turn on margin on your Fidelity account? Or can they just look at your current taxable assets within the account?
They already hold your assets- no need for credit check nor income verification.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by Dagwood »

Chip wrote: Tue Jul 20, 2021 2:35 pm
Dagwood wrote: Tue Jul 20, 2021 1:58 pm Right, yes I can read. But if the market craters while you have a large loan outstanding and you cannot meet a margin call, you are going to get hosed.
I seriously doubt if FIREchief will be borrowing enough against his assets where a margin call is even a remote possibility. At least that's what I get from reading the thread.
Understood. But if it is for emergencies, and not for account leverage, that would imply you would draw it when you are in some sort of financial difficulty. Add in a negative market event and when the margin call comes, where is the money going to come from if the only reason you received a margin loan is because of that eventuality?

Finally, note that SIPA only covers cash in a brokerage account that is there for the purpose of purchasing securities. If the cash is in the account for another purpose (and you may have indicated that purpose with the account or margin lending documentation), it isn't covered. Of course, big brokers rarely fail. The question then becomes would you put cash in a bank product if there were a chance of no FDIC coverage? Bank failures are also rare, fortunately.

Again, all this raises the question of whether this is an appropriate emergency liquidity strategy. When thinking about finance and negative events, I try to consider not the likelihood of a bad event, but the impact if it were to occur. Cross a street 9x against the light, you save time and aren't injured. On the 10th time, you get hit by a car. How do you view that type of thing? It is admittedly personal. Not trying to argue, but people downplay the risks. Good luck to the original poster, I wish the person well and hope this works out.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by FIREchief »

Dagwood wrote: Tue Jul 20, 2021 4:36 pm
Understood. But if it is for emergencies, and not for account leverage, that would imply you would draw it when you are in some sort of financial difficulty.

Again, all this raises the question of whether this is an appropriate emergency liquidity strategy.
I'm not sure where you came up with "emergency." It certainly wasn't in my original post or any of my proceeding posts. Last year was a TLH year. This year I'm leveraging those carryover losses to avoid all capital gains taxes on sales of after-tax equities while also avoiding taxes on $3000 of ordinary income. Next year will be a TGH year, capping taxable income after standard deduction at the top of the zero percent LTCG bracket. Does any of that sound like an "emergency?" Many Bogleheads would readily understand the (potential) need for some short term liquidity in those scenarios. It might not be Bogleheads 101, but it certainly isn't graduate level stuff. You seem to be trapped in some kind of paradigm that has you believing that the only uses for margin are irresponsible leveraging or huge cash emergencies. To be fair, you don't know me or (obviously) my financial situation. Can we please just return this thread to its original purpose, which was understanding the mechanics of adding Margin to a Fidelity account (as indicated in the thread title)? If you want to share your thoughts on the evils and risks of margin borrowing, perhaps you will want to start a thread dedicated to that topic. 8-)
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by SpaethCo »

Dagwood wrote: Tue Jul 20, 2021 4:36 pm Understood. But if it is for emergencies, and not for account leverage, that would imply you would draw it when you are in some sort of financial difficulty. Add in a negative market event and when the margin call comes, where is the money going to come from if the only reason you received a margin loan is because of that eventuality?
I can't speak for the OP, but my most common use case for having margin is to compensate for ACH delays. Fidelity can same-day ACH money out and offers free wire transfers, but often the accounts I want to pull funds from have ACH delays of 2-3 days.

Where it is particularly useful is that sometimes Fidelity will place holds on ACH pulls from external accounts into a CMA account, but transfers from brokerage margin are immediately available for withdrawal. If you do that same ACH pull into the brokerage account to zero out the margin balance you created from the CMA transfer, Fidelity immediately applies the funds and prevents margin interest from being charged. I suspect that it's because if the transfer fails they can always fall back on creating the margin balance and charging interest on it.

In any case, I still think you can use margin to speed up transactions without reaching your point of doom. If I borrow against 10% of my brokerage balance and the market drops 50%, that still leaves me at a rather safe 20% margin balance with cash on the way to zero it out.
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by FIREchief »

SpaethCo wrote: Tue Jul 20, 2021 11:56 pm In any case, I still think you can use margin to speed up transactions without reaching your point of doom. If I borrow against 10% of my brokerage balance and the market drops 50%, that still leaves me at a rather safe 20% margin balance with cash on the way to zero it out.
Bingo. At this point, I'm projecting a worst case scenario of margin borrowing in the next 18 months at 2.84% of the equity balance in that margin account, and that for a maximum of 30 days. Hardly the "point of doom" that I'm being warned about. :twisted:
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Re: Adding margin lending to a Fidelity after-tax brokerage account

Post by FIREchief »

Just an update for anybody who may be following along. After reducing the cash in the Fidelity margin account to under $100, I placed a transfer order to my bank of $100. The money transferred and the account created a margin balance of around $30. A day later, an automatic cash deposit hit the Fidelity account and the account is now paying off the margin balance automatically. IOW, it works great (and as expected). I now have a whopping $0.01 month to date margin interest charge (don't worry about me, I can cover it :P ).
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