Hey there! Thinking about disabling margin on your E*TRADE account? That's a smart move for many investors, especially if you're looking to reduce your risk exposure or simply prefer to stick to cash-based trading. While margin can offer amplified gains, it also carries the potential for amplified losses, margin calls, and interest charges that can quickly add up.
This lengthy guide will walk you through the process of disabling margin on your E*TRADE account step-by-step. Let's get started!
Understanding Why You Might Disable Margin
Before we dive into the "how," let's quickly touch upon the "why." Margin trading essentially allows you to borrow money from E*TRADE (or any brokerage) to buy securities. This leverage can increase your purchasing power, but it also magnifies both potential profits and potential losses.
Here are some common reasons why investors choose to disable margin:
Risk Reduction: The most significant reason. Without margin, you can only lose the capital you've invested, not more.
Avoiding Margin Calls: A sudden market downturn can trigger a margin call, forcing you to deposit more funds or have your positions liquidated, often at a loss. Disabling margin eliminates this risk.
No Interest Charges: You pay interest on borrowed margin funds. Disabling margin means no more interest payments eating into your returns.
Simplicity: Some investors prefer the straightforward nature of cash accounts, where they only trade with their own settled funds.
Investment Strategy: Certain investment strategies are incompatible with or simply don't require margin, making it an unnecessary feature.
Step 1: Engage and Assess Your Current Margin Usage
Before you do anything else, let's take a moment to understand your current situation.
1.1. Log in to Your E*TRADE Account:
Action: Go to the official E*TRADE website (
us.etrade.com) and log in to your account with your username and password. This is your primary gateway to managing your investments.
1.2. Review Your Margin Balance and Positions:
Action: Navigate to your account summary or portfolio view. Look for sections related to "Margin Balance," "Debit Balance," "Margin Requirements," or "Available for Trading."
Important Note: You cannot disable margin if you currently have an outstanding margin debit balance. This means you have borrowed funds that you haven't repaid yet. You will need to address this first.
Check for Open Margin Positions: Identify any securities you've purchased using margin. These are positions where a portion of the purchase was financed by E*TRADE.
1.3. Understand Your Margin Obligations:
Action: Take note of any interest accrued on your margin loan and any open margin calls if they exist.
Why this is crucial: You need to clear all outstanding margin debits before E*TRADE will allow you to convert your account to a cash account or remove margin privileges.
Step 2: Eliminating Your Margin Debit (If Applicable)
If you have an outstanding margin debit, this is your most critical step. You must pay back the borrowed funds before you can disable margin.
2.1. Pay Off Your Margin Debit:
Option A: Deposit Additional Funds:
Action: Transfer cash into your E*TRADE account from a linked bank account. This is the most direct way to cover your margin debit.
Consider this: Ensure the deposited amount is sufficient to cover your entire margin debit balance.
Option B: Sell Securities Held on Margin:
Action: If you have securities purchased on margin, you can sell them. The proceeds from the sale will first be used to pay off the margin loan.
Be Aware: Selling securities can trigger capital gains or losses, and it might not always be the optimal time to sell. Carefully consider the market conditions and your investment strategy.
Option C: Sell Other Securities (Cash or Margin):
Action: Even if a security wasn't purchased on margin, selling it will generate cash that can be used to pay down your margin debit.
Recommendation: Prioritize liquidating any losing positions first, if that aligns with your financial goals, to minimize further losses.
2.2. Verify Zero Margin Debit:
Action: After depositing funds or selling securities, wait for the transactions to settle. Then, re-check your E*TRADE account summary to confirm that your margin debit balance is zero.
Settlement Times: Stock and option trades typically settle in T+1 (trade date plus one business day). Fund transfers can vary. Be patient and confirm settlement before proceeding.
Step 3: Initiating the Margin Disablement Process with E*TRADE
Once your margin debit is cleared, you're ready to contact ETRADE. Unlike some other brokers where you might find a direct "disable margin" button online, ETRADE generally requires direct contact.
3.1. Contact E*TRADE Customer Service:
Action: The most effective way to disable margin is to call E*TRADE's customer service. Look for their contact number on their website, typically in the "Contact Us" or "Help" section.
Why phone? This allows for direct communication, ensuring your request is understood and processed efficiently. You can also ask any questions you may have.
Prepare your information: Have your account number and be ready to verify your identity.
3.2. Clearly State Your Intent:
Action: Inform the E*TRADE representative that you wish to disable margin trading privileges on your account.
Specify your preference: You can request to convert your account to a cash account or simply remove margin trading capabilities while keeping it technically a margin account (meaning no leverage or credit will be offered). Converting to a pure cash account is often the clearer and more definitive step for complete margin removal.
3.3. Follow E*TRADE's Instructions:
Action: The representative will guide you through the necessary steps. This might involve:
Verbal Confirmation: Simply confirming your request over the phone.
Electronic Confirmation: They might send you an email or a secure message within your E*TRADE account that requires your electronic signature or confirmation.
Mailing a Form: In some cases, though less common for simple margin disabling, they might require a signed physical form.
Ask for Confirmation: Request a confirmation number or an email confirming that your request to disable margin has been initiated and processed.
Step 4: Confirmation and Monitoring
After you've made your request, it's essential to confirm that the change has been implemented.
4.1. Monitor Your Account:
Action: Log in to your E*TRADE account periodically over the next few business days.
Look for:
Changes in your account type (if converting to cash).
The disappearance of "Margin Balance" or "Buying Power with Margin" indicators.
A clear indication that you can no longer place margin trades.
Patience is Key: It might take a few business days for the change to fully reflect in your account.
4.2. Contact E*TRADE Again If Needed:
Action: If you don't see the changes after a reasonable amount of time (e.g., 3-5 business days) or if you receive conflicting information, don't hesitate to call E*TRADE customer service again to follow up.
Reference Your Confirmation: If you received a confirmation number, have it ready.
Important Considerations After Disabling Margin
Trading Restrictions: Once margin is disabled, your buying power will be limited to your settled cash balance. You will not be able to borrow funds for trading.
Good Faith Violations (GFVs): In a cash account, you must trade with settled funds. If you buy and sell a security before the funds from the initial purchase have settled, you could incur a Good Faith Violation. Repeated GFVs can lead to trading restrictions. E*TRADE provides information on how to avoid these.
Options and Futures Trading: Certain advanced trading strategies, particularly options and futures, often require margin capabilities. If you engage in these, disabling margin might restrict your ability to trade them. E*TRADE offers "limited margin" for IRAs which still allows some options trading without the borrowing component.
Portfolio Margin Accounts: If you have a Portfolio Margin account (which is for highly sophisticated investors with significant equity), disabling margin might involve a different process or a conversion to a Reg T margin or cash account, potentially impacting your trading capital and strategies.
Frequently Asked Questions (FAQs)
How to check if my E*TRADE account has margin enabled?
You can typically check by logging into your E*TRADE account and looking for "Margin Balance," "Debit Balance," or "Buying Power with Margin" indicators on your account summary or portfolio page. If these figures are non-zero or if you see references to margin, it's likely enabled.
How to pay off a margin debit on E*TRADE?
You can pay off a margin debit by depositing additional cash into your E*TRADE account or by selling securities in your account, with the proceeds automatically applied to the debit.
How to contact E*TRADE customer service to disable margin?
You can find E*TRADE's customer service phone number on their official website, usually in the "Contact Us" or "Help" section. Calling them directly is generally the most efficient way to disable margin.
How to avoid a Good Faith Violation after disabling margin?
To avoid a Good Faith Violation in a cash account, ensure that the funds you use for a purchase have fully settled before you sell the security. For most stock and option trades, this means waiting until T+1 (trade date plus one business day) for the funds to settle.
How to re-enable margin on E*TRADE if I change my mind?
To re-enable margin, you would typically need to reapply for margin privileges through E*TRADE. This often involves completing a new margin application and undergoing another approval process, which may include credit checks and suitability assessments.
How to understand the risks of margin trading before disabling it?
E*TRADE and FINRA (Financial Industry Regulatory Authority) provide extensive resources on the risks of margin trading, including amplified losses, margin calls, and interest charges. It's crucial to review these materials to fully understand what you're opting out of.
How to convert my E*TRADE account to a pure cash account?
When you contact E*TRADE customer service to disable margin, specifically request to convert your account to a "cash account." This ensures all margin privileges are removed, and you'll operate strictly on settled funds.
How to handle open positions when disabling margin?
If you have open positions purchased with margin, you must either pay off the associated margin debit with cash or sell those positions (or other positions) to clear the debit before you can disable margin.
How to confirm that margin has been successfully disabled on my E*TRADE account?
After contacting ETRADE, regularly log in to your account. Look for the absence of margin-related balances or buying power and a confirmation from ETRADE, either through a secure message or email.
How to get more information about E*TRADE's margin policies?
You can find detailed information about E*TRADE's margin policies, rates, and requirements on their official website, typically in their "Margin Trading Resources" or "Disclosure Library" sections.
