Last week, I decided to add Margin to my Fidelity account. I wanted to hold off on transferring funds for an order until it was actually filled.
I was a bit hesitant about transferring money into the account before a limit order goes through. Fast forward to today, and I made my inaugural buy using margin.
Here’s the play-by-play:
I had roughly $1,187 in my settlement account (SPAXX). After a successful buy, I moved $500 from my external checking account, bringing my cash value up to $1,687 – just enough to cover the $1,578.45 purchase.
Now, this is where it got interesting. I received a notification from Fidelity about a margin debit of $1,578.45 from the transactions. The message warned that my core account and non-core money market positions would automatically liquidate to pay down this debt if I didn’t take action.
They suggested either liquidating securities or depositing cash by the settlement date to dodge margin interest charges.
Short answer: Don’t worry if you see a margin debit notice on Fidelity. Just make sure your account has enough money to cover it by the settlement date to avoid paying interest charges.
Fidelity Margin Debit Explained
I hit the forums to get some insights as to why there is a margin debit created for my Fidelity account. That’s where I stumbled upon two gems:
If Fidelity says that you need to pay down your Margin debt to avoid margin interest charges, here is what you need to do.
Check “Available to Trade Without Margin Impact”
When in doubt about your available funds, head over to Balances page on the Fidelity website and look for Available to Trade Without Margin Impact.
This figure should already include any unsettled cash and available for trading without borrowing on margin.
As one user from Reddit pointed out:
I get that message on a regular basis because I will typically purchase stocks or ETFs before the settlement date from fund transfers or sales of other holdings.
The only risk is that the funds don’t settle because of some unforeseen circumstance. Worst case would be they sell something you didn’t want to sell to cover it.
Identify Margin Transactions
In your Fidelity account, when you buy a security using margin, there will be an M right after the number of shares. When you exceed the amount of cash you have, it will show how much you owe in margin.
In Summary
When dealing with a margin account on Fidelity, you’ll often get warnings about margin debit, liquidation, and interest charges. The key here is to understand how much you have in collateral and how much margin you’ve used up. Check the tips above to review your account balances.
As long as there’s sufficient cash in your Fidelity core position, it will be used to cover the debit on the settlement date, and no interest charges will incur.
Also, I’ve adopted a strategy of utilizing margin even when I have sufficient cash on hand. This approach treats the purchased security as collateral for the margin, which can be beneficial in specific scenarios.