Have you found yourself with an ETRADE margin account and now realize it might not be the right fit for your investment strategy? Perhaps the risks associated with leverage outweigh the potential benefits, or you simply prefer a more straightforward cash-based approach to investing. Whatever your reasons, turning off margin on ETRADE is a process that requires careful consideration and a few distinct steps.
This lengthy guide will walk you through everything you need to know to disable margin investing at E*TRADE, whether you want to convert your account to a full cash account or simply turn off the margin feature while keeping the account type. Let's dive in!
Understanding Margin Accounts Before You Turn It Off
Before we get into the nitty-gritty of turning off margin, it's crucial to understand what a margin account entails. A margin account allows you to borrow money from your brokerage (ETRADE in this case) to purchase securities*. This borrowed money is called margin, and the securities you buy with it act as collateral for the loan.
Key characteristics of a margin account:
Leverage: Margin allows you to control a larger position with a smaller amount of your own capital. This amplifies both potential gains and, critically, potential losses.
Interest Charges: You pay interest on the money you borrow from E*TRADE. These interest rates can vary and accrue over time, eating into your potential profits.
Margin Calls: If the value of the securities in your margin account drops below a certain threshold (the maintenance margin), ETRADE can issue a "margin call." This demands you deposit additional funds or sell securities to bring your account back to the required level. Failure to meet a margin call can lead to forced liquidation of your holdings by ETRADE, often at a loss, without prior notice.
Short Selling: Margin accounts are typically required for short selling, where you borrow shares and sell them, hoping to buy them back later at a lower price.
Turning off margin means foregoing these features and their associated risks and benefits.
Step 1: Assess Your Current Margin Usage and Account Status
Before you initiate any changes, take a moment to engage with your current account situation. Do you have any open margin trades? Is there a debit balance (money owed to E*TRADE)? This initial assessment is crucial.
Sub-heading 1.1: Check Your Margin Debit Balance
The first and most important thing to check is whether you currently owe E*TRADE any money on margin. You cannot disable margin or convert your account if you have an outstanding margin debit balance.
How to check: Log in to your E*TRADE account online or through the mobile app. Navigate to your account summary or positions page. Look for a "margin debit" or "loan balance" figure. If it's anything other than $0, you have an outstanding margin loan.
Sub-heading 1.2: Review Open Margin Positions
Do you have any securities currently held on margin? These are positions that were purchased, even partially, with borrowed funds.
Actionable insight: If you have open margin positions and a debit balance, you will need to either sell those positions or deposit enough cash to cover the loan before proceeding. Remember that selling positions might incur capital gains or losses and could trigger tax implications.
Sub-heading 1.3: Understand the Implications of Turning Off Margin
By turning off margin, you will lose the ability to:
Leverage your investments: Your buying power will be limited to your available cash.
Short sell securities: This strategy requires a margin account.
Trade with unsettled funds: In a cash account, you must wait for funds from sales to settle (typically T+1 for most stocks) before using them for new purchases, to avoid good-faith violations.
Step 2: Choose Your Path: Disable Margin Investing or Convert to Cash Account
E*TRADE generally offers two main ways to turn off margin, depending on your preferences:
Sub-heading 2.1: Option A: Disable Margin Investing (Keep Margin Account Type)
This option allows you to turn off the ability to use leverage for new trades, but your account technically remains a margin account type. This might be suitable if you want the option to re-enable margin easily in the future, or if you have certain account features tied to a margin account that you don't want to lose. However, it's generally recommended to convert to a cash account for full disengagement from margin.
Sub-heading 2.2: Option B: Request to Switch to a Cash Account
This is the most common and recommended path for completely disengaging from margin. Converting to a cash account means your account will function solely on your available cash, and you won't have any margin capabilities.
Benefits of a cash account:
Simplicity: No complex margin rules, interest charges, or margin calls to worry about.
Lower Risk: Your losses are limited to the capital you invest.
No Interest Payments: You won't incur interest on borrowed funds.
Considerations for a cash account:
Reduced Buying Power: You can only buy what you have cash for.
Settlement Delays: You must wait for trades to settle before reusing funds.
For the purpose of this comprehensive guide, we will focus on the steps for both, but emphasize the conversion to a cash account as the more definitive way to "turn off margin."
Step 3: Navigating E*TRADE to Initiate the Change
The process for turning off margin or converting to a cash account can typically be done online or through the E*TRADE mobile app.
Sub-heading 3.1: Via the E*TRADE Website (Recommended for Clarity)
Log In: Go to the E*TRADE website (us.etrade.com) and log in to your account.
Access Account Settings: Look for a menu icon (often three horizontal lines or an icon that says "Menu") typically in the top left corner. Click on it.
Navigate to Investment Settings: From the menu, find and select "Account Settings."
Find Margin Management: Within Account Settings, scroll down to the "Investment Settings" section. You should see an option for "Margin Management." Click on it.
Choose Your Option: Here, you will typically find the two options:
"Turn off margin investing": Select this if you only want to disable new margin purchases but keep the account type as margin.
"Request to switch to cash account": This is the option to fully convert your account type. Click on this.
Follow On-Screen Prompts: E*TRADE will guide you through the remaining steps, which may include reviewing disclosures, confirming your understanding of the changes, and potentially signing an electronic agreement. Read all information carefully before confirming.
Sub-heading 3.2: Via the E*TRADE Mobile App
Open the App: Launch the E*TRADE mobile app on your smartphone or tablet.
Log In: Enter your credentials to log in.
Access Menu: Tap the Menu icon (usually three horizontal lines or an "≡" icon) in the top left corner.
Go to Account Settings: Scroll down and tap on "Account Settings."
Locate Margin Management: Look under "Investment Settings" for "Margin Management." Tap on it.
Select Your Choice: You will see options like "Turn off margin investing" or "Request to switch to cash account." Choose the one that best suits your needs.
Complete the Process: Follow the prompts to confirm your decision.
Step 4: Confirming the Change and Post-Change Actions
After submitting your request, there are a few things to keep in mind.
Sub-heading 4.1: Confirmation and Processing Time
Email Confirmation: E*TRADE should send you an email confirmation once your request has been received and/or processed. Keep an eye on your inbox (and spam folder).
Processing Time: The change might not be instantaneous. It can take a few business days for the account type conversion to be fully processed, especially if you're switching to a cash account.
Sub-heading 4.2: Review Your Account Post-Change
Once you receive confirmation, log back into your ETRADE account* to verify the change.
Check Buying Power: Your buying power should now reflect only your available cash.
Account Type (if applicable): If you requested a conversion to a cash account, your account type should reflect this change in your account details.
Important Considerations and Warnings
Zero Margin Debit Beforehand: I cannot stress this enough: You must have a $0 margin debit balance before you can turn off margin or convert your account. If you don't, your request will likely be rejected.
Liquidation Risk: If you have open margin positions and fail to meet a margin call, E*TRADE has the right to sell your securities to cover the debt, potentially at a loss. Ensure you address any outstanding margin debt before attempting to turn off margin.
Tax Implications: Selling securities to pay off a margin loan can have tax implications. Consult with a tax professional if you have significant gains or losses.
IRA Accounts: Individual Retirement Accounts (IRAs) are typically cash accounts by default and do not permit margin trading. If you have an IRA, you generally won't have margin enabled in the first place.
Contacting Customer Service: If you encounter any issues or cannot find the options mentioned, don't hesitate to contact E*TRADE's customer service directly. They can guide you through the process and address any specific concerns.
10 Related FAQ Questions
Here are 10 related FAQ questions with quick answers to further assist you:
How to check my margin debit balance on E*TRADE?
You can check your margin debit balance by logging into your E*TRADE account and navigating to your account summary or positions page. Look for a line item indicating "margin debit" or "loan balance."
How to know if my E*TRADE account is a margin account or cash account?
Log in to your E*TRADE account and go to your account details or profile section. The account type (e.g., "Margin Account" or "Cash Account") will typically be listed there.
How to pay off a margin loan on E*TRADE?
You can pay off a margin loan by depositing additional cash into your E*TRADE account, or by selling securities in your account, with the proceeds going towards the loan.
How to avoid a margin call on E*TRADE?
To avoid a margin call, maintain sufficient equity in your account, monitor your portfolio regularly, and consider reducing your leveraged positions if market conditions become volatile.
How to reactivate margin on E*TRADE after turning it off?
If you simply "turned off margin investing" and kept your margin account type, you might be able to re-enable it through the "Margin Management" section in Account Settings. If you converted to a cash account, you would typically need to apply for a margin account again, which may involve a review process.
How to convert an E*TRADE IRA account to a cash account?
IRA accounts are generally cash accounts by default and do not allow margin trading. Therefore, there's typically no need to "convert" an IRA to a cash account.
How to understand E*TRADE's margin interest rates?
E*TRADE's margin interest rates are typically tiered, meaning the rate changes based on the amount of your margin loan. You can usually find their current margin rates on their website under the "Pricing & Rates" or "Margin Trading" sections.
How to contact E*TRADE customer service for account changes?
You can contact E*TRADE customer service by phone (their numbers are usually listed on their website under "Contact Us") or through secure messaging within your online account.
How to close an E*TRADE margin account entirely?
To close an ETRADE margin account, you would typically need to liquidate all positions, ensure a $0 balance (no margin debit or credit), and then contact ETRADE customer service to formally request account closure.
How to understand the risks of margin trading fully?
It is crucial to read E*TRADE's margin disclosure agreement, review their educational resources on margin trading, and consider consulting with a financial advisor to fully understand the amplified risks, including the potential for losses exceeding your initial investment.
