Non-Marginable Securities

What they are

Non-marginable securities are assets that a brokerage will not allow an investor to buy using borrowed funds from a margin account. These securities must be paid for in full with the investor’s cash and do not count toward margin buying power.

Why brokers restrict them

Brokers designate certain stocks as non-marginable to reduce risk and administrative burden. Volatile, low-priced, or thinly traded securities are more likely to swing sharply in value, which increases the chance of margin calls and forced liquidations. Restricting margin on these securities helps protect both the brokerage and its customers from rapid, large losses.

Typical characteristics and examples

Securities commonly designated non-marginable include:
* Recent initial public offerings (IPOs) until they trade on the secondary market for a specified time.
* Penny stocks and over-the-counter (OTC) bulletin board stocks.
* Stocks with very low share prices (often under a broker-specific threshold such as $3–$5).
* Extremely volatile or low-volume issues.

Each brokerage maintains its own list of non-marginable securities and may update it as prices, volatility, and trading volume change.

Marginable vs. non-marginable: key differences

• Marginable securities: Can be pledged as collateral in a margin account, count toward initial and maintenance margin requirements, and permit borrowing against their value. Using margin can amplify gains — and losses — and may trigger margin calls requiring additional funds or liquidation of positions.
• Non-marginable securities: Cannot be used as collateral and must be fully funded with cash. They do not increase available margin buying power and avoid being subject to margin borrowing.

Brokerage policies and special margin requirements

Brokerages set specific rules that govern what is marginable and the margin percentages required:
* Rules vary by firm. For example, some brokerages require a minimum share price (e.g., $3) for a stock or ETF to be marginable.
* Mutual funds may be marginable only after a holding period (commonly 30 days).
* Investment-grade bonds are often marginable.
* Brokers can assign higher-than-normal margin requirements to certain volatile stocks. For instance, some firms apply special maintenance margin rates that are significantly higher for specific ticker symbols (examples include extreme margin requirements for highly shorted or volatile names).

Practical implications for investors

• If you plan to use margin, check your brokerage’s marginable list before buying a security; otherwise you may be unable to finance the purchase with borrowed funds.
• Holding non-marginable securities protects you from margin calls on those holdings, but also prevents those positions from providing collateral value.
• Understand that margin amplifies both gains and losses; securities that are marginable can still trigger margin calls and forced sales during sharp market moves.

Key takeaways

• Non-marginable securities must be paid for in full and cannot be pledged as collateral in a margin account.
• They are designated non-marginable to limit risk from volatility, low price, or low liquidity.
• Broker-specific lists and rules determine which securities are non-marginable and may include special margin requirements for some volatile assets.
• Always review your broker’s margin policies before using margin or purchasing thinly traded, low-priced, or newly public securities.