The

Charles Schwab & Co.

Guide to Margin
Margin is a tool that can be used to potentially
generate greater returns, execute investment
strategies, and serve as a source of flexible low
cost borrowing for other lending needs. If you
decide to use margin, we want to help you do so
with confidence by providing outstanding support
and resources like this handbook. The Schwab
Guide to Margin can help you understand how to
use margin responsibly and effectively.

For specific questions not addressed here, please contact us at 877-752-9749 (within the U.S.), or +1-415-667-8400 (outside of the U.S.).
For clients of Schwab Singapore Pte. Ltd. contact +65-6536-3922 www.schwab.com.sg.

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Table of Contents
What is Margin? 3
Opening a Margin Account 3
Securities Eligible for Margin 3
Accounts Not Eligible for Margin 4
Margin Information on Schwab.com 4
Margin Benefits and Features 5
Margin Risks 6
Margin Calls 7
Tips for Managing Margin Risk 9
Margin Requirements 10
Initial Equity Requirements 10
Maintenance Requirements 10
Equities 12
Options 13
Debt 22
Pattern Day Trading 23
Pattern Day Trading Margin Requirements 23
Strategies for Using Margin 24
Margin for Personal Expenses 24
Short Selling 25
Options 26
Sales and Withdrawals 29
Selling Stock 29
Substitutions 30
Withdrawals 30
Glossary 31

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What is Margin?
Margin is an extension of credit from a brokerage company using your own securities as
collateral. Funds borrowed on margin may be used for any purpose, including the purchase
of securities. Interest is charged on the borrowed funds for the period of time that the loan is
outstanding.

The use of margin is regulated by financial industry regulatory organizations, certain securities
exchanges, and the broker-dealer holding the account.

Opening a Margin Account

If your Schwab One brokerage account does not have the margin feature, it’s easy to add
it online by logging into your Schwab account and clicking on Service > Account Settings >
Options & Margins. This page will also indicate whether your account has the margin feature.
Once your account is approved for margin, you can borrow at any time with no additional
forms or applications required.

Investors opening a margin account must deposit cash or eligible securities totaling at
least $2,000. Once the account is open, investors may generally borrow up to 50% of the
securities’ value. Note that not all securities are marginable (see below). Interest is calculated
daily on the amount borrowed and posted to the account on a monthly basis.

Securities Eligible for Margin

Schwab has requirements for the types of eligible securities that may be used as collateral for
a margin loan:

• Most stocks, ETFs, and ETNs traded on major U.S. exchanges (including NASDAQ) with a
share price of $3 or higher
• Most mutual funds owned for more than 30 days
• Most investment grade corporate, treasury, municipal, and government agency bonds
• IPO shares purchased on the secondary market one business day following the IPO.
Please note, however, IPO stocks which do not meet certain Schwab volatility hurdles
during their first year may not be marginable.

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Accounts Not Eligible for Margin
• Individual Retirement Accounts (IRA, including Custodial, Education, Rollover,
Roth, & Roth Conversion; SAR-SEP, SEP, SIMPLE, and Traditional)
• 401(k) Accounts
• 403(b) Accounts
• Uniform Gift to Minors Act (UGMA) Account
• Uniform Transfer to Minors Act (UTMA) Account
• Company Retirement Account (CRA)
• Conservatorships
• Guardianships
• PCRAs (Personal Choice Retirement Account, specifically in which a Trust Company is
the trustee)
• QRP/Keoghs
• Charitable and non-profit organizations

Margin Information on Schwab.com

Margin details are available on the Account Balances page on Schwab.com. Here you can
see information such as margin equity, funds available to trade or withdraw as cash, current
margin balance, and month-to-date margin interest owed.

The maintenance requirement for a specific security can be found by logging into your
account on Schwab.com. Click on the Research tab, enter a stock name or symbol, and click
on the Research button. Click on the Margin Requirements link (under the green Trade button
at the top right corner of the page) and the margin maintenance requirement will display.
Borrowing on margin may not be appropriate for every investor and it is important to determine how it fits into your investment
strategy. Margin has additional risk associated with market volatility, and it is possible to lose more funds than you deposit into
your account. Margin accounts also require a higher level of attention, including potentially monitoring stock prices on a daily
basis. Schwab generally recommends margin be used by clients with more than five years of investing experience. Please review
Margin Borrowing at Schwab: Overview and Disclosure Statement for additional information.

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Margin Benefits & Features
Whether you are looking to increase your investment return or need a convenient line of
credit, a margin loan from Schwab can provide these key advantages:

• Leveraging of Investments. Buying on margin allows you to potentially achieve greater

investment returns by owning more securities than would be possible on a cash-only
basis. A Schwab margin account also enables you to sell short (borrow shares from
Schwab to sell immediately and repurchase them at a lower price in the future) and
potentially profit from downward price movements.
• Trading Flexibility. Take advantage of timely market opportunities or make investment
changes when you want, as long as you maintain the minimum equity required.
• Stay Invested. Keep your investment strategy on track and defer any capital gains taxes
that might result from selling securities to meet your financing needs.
• Portfolio Diversification. If you hold a concentrated stock position, you can use margin to
diversify your portfolio.
• Convenience. Borrow at any time once your account is approved for margin. No
additional forms or applications are required. Simply place a trade or withdraw funds
using a Schwab One® check or Schwab One Visa debit card. Margin is not available for all
account types.
• Repayment Simplicity. There is no set repayment schedule as long as you maintain the
required level of equity in your account.
• Competitive Interest Rates. Margin borrowing is generally more cost-effective than
consumer lending options like credit cards, and Schwab’s rates are competitive.
• Ready Line of Credit. A margin loan is a ready source of credit that may be used as a
short-term loan for your personal financial needs.
• Tax Deductibility. Interest on margin loans may be tax deductible against your net
investment income. Please consult your tax advisor about your situation.

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Margin Risks
When considering a margin loan, you should determine how the use of margin fits your
own risk tolerance and investment goals. It is important that you fully understand the risks
involved using margin:

• Leverage Risk. Leveraging means using margin to potentially capture more returns
than when investing on a cash-only basis. Being invested on margin when the market
performs favorably allows investors to have greater gains than without margin. However,
while leverage is certainly a powerful tool, it is important to recognize that the value of
your investments can decrease as well as increase. Leveraging exposes you to greater
downside risk than paying for securities in full because if the securities acting as collateral
for your margin loan lose value, you must still either repay Schwab the amount of money
you borrowed on margin or meet a margin call, regardless of the underlying value of the
securities you purchased.
• Interest Rate Risk. Like any other loan, you must repay your margin loan along with
interest, regardless of the underlying value of the securities purchased. Keep in mind
that it is possible that margin interest rates may fluctuate during the time you have an
outstanding loan.
• Margin Call Risk. Schwab can increase its margin maintenance requirements at any
time without prior notice. If the equity in your account falls below Schwab’s minimum
maintenance requirements, Schwab will issue a margin call requiring you to deposit
additional cash or acceptable collateral.
• Forced Liquidation Risk. If you fail to meet a margin call, Schwab may be forced to sell
some or all of the securities in your account to protect its loan, with or without your prior
approval. You are not entitled to an extension of time on a margin call.

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Margin Calls
It is important for margin investors to understand it is their responsibility to ensure the equity
in their account does not fall below the minimum maintenance level. Schwab can liquidate
securities to cover any margin deficiency and is not required to notify you before doing so.
If you or Schwab liquidate securities to meet a margin call, your risks include unintended
tax consequences from the sale of your securities, the possibility that Schwab might sell
securities you preferred to hold, or that you may be unhappy with the price received for
the sale.

If a margin call is issued, you are required to promptly bring your account to the required
maintenance level using one of the methods listed below. It is Schwab’s policy to attempt to
contact you, when practicable, to notify you of a margin deficiency. However, Schwab can sell
securities in your account, without prior notice, to cover any deficiency.

Call Type What Triggers a Call How to Meet a Call

Federal Regulation Issued when the initial equity • Deposit a check at a branch
T Call provided for the purchase of a
• Send a check via overnight mail
security is below the 50% required
(Standard mail is not appropriate
by the Federal Reserve Board.
for any type of margin call.)
Reg T calls are due at settlement. • Wire funds
• Use an active MoneyLink profile
to move funds to Schwab
• Deposit marginable stock
• Journal cash or securities from
your other Schwab accounts
• Liquidate securities*

Maintenance Call Issued when the value of your • Deposit a check at a branch
margined securities minus the loan
• Send a check via overnight mail
balance in your account is less than
the maintenance requirement of the • Wire funds
margined securities (usually 30% • Use an active MoneyLink profile
for equity securities). to move funds to Schwab
Maintenance calls are due • Deposit marginable stock
immediately.
• Journal cash or securities from
your other Schwab accounts
• Liquidate securities

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Call Type What Triggers a Call How to Meet a Call

Minimum Equity Issued when a client has a margin • Deposit a check at a branch
Call debit balance and the value of the
• Send a check via overnight mail
client’s account falls below $2,000.
• Wire funds
For short positions, a minimum
• Use an active MoneyLink profile
equity call will be issued anytime
to move funds to Schwab
an account’s equity is less than
$2,000, even if the account is not • Deposit marginable stock
holding a debit balance.
• Journal cash or securities from
Minimum equity calls are due on your other Schwab accounts
settlement of the trade. • Liquidate securities

Day Trade If Day Trading Buying Power (DTBP) • Deposit a check at a branch
Maintenance Call is exceeded intraday, a day trade
• Send a check via overnight mail
maintenance call will be issued the
(see Day Trade following business day. • Wire funds
Margin Requirements
• Use an active MoneyLink profile
here) Day trade maintenance calls are
to move funds to Schwab
due in five business days.
• Deposit marginable stock
Until the day trade maintenance call
is met, pattern day traders must • Journal cash or securities from
limit the total cost of all day trades your other Schwab accounts
for each day to within the DTBP • Liquidate long options or cash
figure reflected at the start of the account securities
day. As such, DTBP will decrease
with each opening transaction
during the day, but will not be
credited for closing transactions.

Funds deposited to meet a day

trade maintenance or minimum
equity call must remain in the
account for a minimum of two
business days or in accordance
with Schwab’s other hold times for
incoming funds.

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 Call Type What Triggers a Call How to Meet a Call

Day Trade Margin equity falls below the • Deposit a check at a branch
Minimum $25,000 pattern day trader equity
• Send a check via overnight mail
Equity Call requirement.
• Wire funds
On days that Pattern Day Trader
• Use an active MoneyLink profile
(PDT) clients begin the day with
to move funds to Schwab
less than $25,000 in equity, they
will be held to liquidating trades • Deposit marginable stock
only for that entire day.
• Journal cash or securities from
your other Schwab accounts
• Liquidate long options or cash
account securities.

*Note: Repeatedly liquidating stock to meet Federal Regulation T margin calls may result in restrictions on margin trading
in your account.

Tips for Managing Margin Risk

Borrow against
Don’t be fully Closely watch
a diversified Have a plan
leveraged your portfolio
portfolio

• Don’t Be Fully Leveraged. Borrow less than the maximum amount allowable in
your account. Set a personal equity level for yourself that is higher than Schwab’s
house requirements and monitor your portfolio to ensure you are not going below that
equity level.
• Borrow Against a Diversified Portfolio. This reduces the risk that a single security’s drop
in value will trigger a margin call.
• Closely Watch Your Portfolio. Be aware of what is going on in the market. Recognize
that margin does bring increased risk, and consistently reassess your risk tolerance.
Anticipate a potential decline in value, especially during uncertain market conditions.
• Have a Plan. When you use margin, have a plan in mind. Develop a risk management
strategy for your investments that is consistent with your market outlook and stick to it.
Develop contingency plans for dealing with potential margin calls, and have a repayment
plan ready if the market turns, if margin maintenance requirements rise, or if margin
interest rates rise.

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Margin Requirements
Initial Equity Requirements
Federal Reserve Board Regulation T allows brokerage firms to lend clients up to 50% of the
total purchase price of a stock. Schwab further requires that the equity in an account be
at least 30% of the current market value of the security. Schwab’s initial minimum equity
requirement to borrow using margin is $2,000.

Maintenance Requirements
The securities used as collateral must maintain a minimum value relative to the account’s
margin debit balance. Schwab’s basic maintenance requirement for equity securities (“stock”)
is 30% of the current market value of the security; however, this varies depending on the type
of security.

Because maintenance requirements are based on the current market value of a stock, not on
your purchase price, a decline in the price of a marginable security will result in a reduction of
your equity and the potential for a maintenance call in your account. If this happens, you are
responsible for promptly depositing the necessary cash or securities, or liquidating sufficient
securities in the account, to satisfy the maintenance call.

Example Scenario*
On Day 1, you purchase 100 shares of stock using your margin account. The current
market value of your shares is $10,000. Regulation T permits you to borrow half on margin,
or $5,000.

Current Margin Client’s Account Initial Required

# Shares $ Per Share
Market Value Debit Equity Min. Equity

100 $100 $10,000 $5,000 $5,000 $2,000

On Day 10, the value of the stock increases to $120 and the current market value of your
shares is $12,000. You owe the brokerage company the $5,000 you borrowed, but you now
have $7,000 in equity and an unrealized profit of $2,000 minus any interest owed on the loan.

Current Margin Client’s Account Required

# Shares $ Per Share
Market Value Debit Equity Min. Equity

100 $120 $12,000 $5,000 $7,000 $3,600

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On Day 25, the value of the stock drops from $120 to $60 and the current market value of
your shares is now $6,000.

Current Margin Client’s Account Required

# Shares $ Per Share
Market Value Debit Equity Min. Equity

100 $60 $6,000 $5,000 $1,000 $1,800

In this example, the equity cannot fall below $1,800 (30% of $6,000). Since the current equity
is only $1,000, Schwab would issue a maintenance call requiring you to either:

1. Deposit $800 cash, or

2. Deposit marginable securities in the amount of $1,142.86, or
3. Liquidate stock in the amount of $2,666.67
*The calculations in this example do not take into account interest charges, commissions, or fees.

When Stock When Stock

Margin Loan
Value Increases Value Decreases

Purchase 100 shares Stock increases to Stock decreases to

at $100 per share $120 per share $60 per share

You invest 50%

Your $5,000 Your $5,000
or $5,000
investment investment
(as required by Regulation T)

You borrow the Margin Call

Your $5,000 Equity is $1,000
remaining $5,000
margin balance $4,000 loss after
on margin Margin call when
repaying margin balance equity is <$1,800
(30% of $6,000)
Total Value of your Total Value of your Break even point
shares is $10,000 $2,000 profit shares is $6,000

Total Value of your

shares is $12,000

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Equities
Schwab’s current initial and maintenance requirements are shown in the tables below.

Security Type Initial Min. Equity Req. Schwab Initial Req. Schwab Maintenance Req.

Long: Common, Non-Leveraged ETFs/ETNs, Preferred & Warrants

≥ $3.00 per share Lesser of $2,000 or 50% of cost 30% of market value
100% market value

< $3.00 per share 100% market value 100% of cost 100% of market value

Short Sales: Common, Non-Leveraged ETFs/ETNs, Preferred & Warrants

> $16.66 $2,000 50% net proceeds 30% short market value

$5.00 – $16.66 $2,000 50% net proceeds $5 per share

$2.50 – $4.99 $2,000 50% net proceeds 100% short market value
< $2.50 $2,000 50% net proceeds $2.50 per share

Other Equity Types/Positions

Mutual Funds1 Lesser of $2,000 or 50% of cost 30% of market value

100% market value

Money Market Funds1 Lesser of $2,000 or 10% of cost 10% of market value
100% market value

Boxed Positions $2,000 10% of market value 10% of market value

Long: Leveraged ETFs/ETNs

2X Leveraged Lesser of $2,000 or 50% of cost 50% of market value

ETFs/ETNs 100% market value

3X Leveraged Lesser of $2,000 or 75% of cost 75% of market value

ETFs/ETNs 100% market value

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 Security Type Initial Min. Equity Req. Schwab Initial Req. Schwab Maintenance Req.

Short Sale: Leveraged ETFs/ETNs

2X Leveraged
ETFs/ETNs
> $8.33/share $2,000 60% of net proceeds 60% short market value

$5.00 - $8.33/share $2,000 $5.00/share $5.00/share

$2.50 - $4.99/share $2,000 100% 100%

< $2.50/share $2,000 $2.50/share $2.50/share

3X Leveraged
ETFs/ETNs
> $5.55/share $2,000 90% of net proceeds 90% short market value

$5.00 – $5.55/share $2,000 $5.00/share $5.00/share

$2.50 – $4.99/share $2,000 100% 100%

< $2.50/share $2,000 $2.50/share $2.50/share

1
Not marginable until 30 days after the purchase settles (100% initial requirement).

Exchange-Traded Products are subject to risks similar to those of stocks. Investment returns will fluctuate and are subject to
market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost.

Options
Security Type Initial Min. Equity Req. Schwab Initial Req. Schwab Maintenance Req.

OPTIONS – Long

Equity Option Lesser of $2,000 or 100% of cost Same as initial requirement

100% market value

Foreign Currency Lesser of $2,000 or 100% of cost Same as initial requirement

Option 100% market value

Index Option

Broad-Based Lesser of $2,000 or 100% of cost Same as initial requirement

Index Options 100% market value

Narrow-Based Lesser of $2,000 or 100% of cost Same as initial requirement

Index Options 100% market value

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Security Type Initial Min. Equity Req. Schwab Initial Req. Schwab Maintenance Req.

OPTIONS – Short

Broad-based Index
Naked Calls $25,000 Greater of: Greater of minimum
equity requirement or
• 15% underlying value
initial requirement
– out of the money
amount + premium
(20% for ETNs)
• 10% underlying value
plus premium
• $100 per contract

Naked 2X $25,000 Greater of: Greater of minimum

Leveraged equity requirement or
• 30% underlying value
ETF/ETN Calls initial requirement
– out of the money
amount + premium
(40% for ETNs)
• 20% underlying value
plus premium
• $100 per contract

Naked 3X $25,000 Greater of: Greater of minimum

Leveraged equity requirement or
• 45% underlying value
ETF/ETN Calls initial requirement
– out of the money
amount + premium
(60% for ETNs)
• 30% underlying value
plus premium
• $100 per contract

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Security Type Initial Min. Equity Req. Schwab Initial Req. Schwab Maintenance Req.

OPTIONS – Short

Broad-based Index
Naked Puts Lesser of $25,000 Greater of: Greater of minimum
or max loss equity requirement or
• 15% underlying value
initial requirement
– out of the money
amount + premium
(20% for ETNs)
• 10% Contract Value
plus premium
• $100 per contract or
max loss

Naked 2X Lesser of $25,000 Greater of: Greater of minimum

Leveraged or max loss equity requirement or
• 30% underlying value
ETF/ETN Puts initial requirement
– out of the money
amount + premium
(40% for ETNs)
• 20% Contract Value
plus premium
• $100 per contract or
max loss

Naked 3X Lesser of $25,000 Greater of: Greater of minimum

Leveraged or max loss equity requirement or
• 45% underlying value
ETF/ETN Puts initial requirement
– out of the money
amount + premium
(60% for ETNs)
• 30% Contract Value
plus premium
• $100 per contract or
max loss

Straddle/Combo $25,000 Uncovered requirement Greater of minimum

for the leg with equity requirement or
the higher naked initial requirement
requirement, plus the
premium of the other leg
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Security Type Initial Min. Equity Req. Schwab Initial Req. Schwab Maintenance Req.

OPTIONS – Short

Broad-based Index
Spread $2,000/$25,0001 Credit Spread: Greater of minimum
Difference in strike equity requirement or
prices x 100 x no. of initial requirement
contracts
Debit Spread:
100% of cost

Complex Spread2 $2,000/$25,0001 Lesser of: Greater of minimum

(apply only to the equity requirement or
• Sum of component
following strategies): initial requirement
initial naked
Box Spreads requirements
Butterfly Spreads • Maximum potential
loss of strategy
Condor Spreads
Iron Butterfly
Spreads
Iron Condor Spreads

Narrow-based Index
Naked Calls $25,000 Greater of: Greater of minimum
equity requirement or
• 20% underlying value
initial requirement
– out of the money
amount + premium
• 10% underlying value
plus premium
• $100 per contract

Naked 2X $25,000 Greater of: Greater of minimum

Leveraged equity requirement or
• 40% underlying value
ETF/ETN Calls initial requirement
– out of the money
amount + premium
• 20% underlying value
plus premium
• $100 per contract

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Security Type Initial Min. Equity Req. Schwab Initial Req. Schwab Maintenance Req.

OPTIONS – Short

Narrow-based Index
Naked 3X $25,000 Greater of: Greater of minimum
Leveraged equity requirement or
• 60% underlying value
ETF/ETN Calls initial requirement
– out of the money
amount + premium
• 30% underlying value
plus premium
• $100 per contract

Naked Puts Lesser of $25,000 Greater of: Greater of minimum

or max loss equity requirement or
• 20% underlying value
initial requirement
– out of the money
amount + premium
• 10% Contract Value
plus premium
• $100 per contract or
max loss

Naked 2X Lesser of $25,000 Greater of: Greater of minimum

Leveraged or max loss equity requirement or
• 40% underlying value
ETF/ETN Puts initial requirement
– out of the money
amount + premium
• 20% Contract Value
plus premium
• $100 per contract or
max loss

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Security Type Initial Min. Equity Req. Schwab Initial Req. Schwab Maintenance Req.

OPTIONS – Short

Narrow-based Index
Naked 3X Lesser of $25,000 Greater of: Greater of minimum
Leveraged or max loss equity requirement or
• 60% underlying value
ETF/ETN Puts initial requirement
– out of the money
amount + premium
• 30% Contract Value
plus premium
• $100 per contract
or max loss

Straddle/Combo $25,000 Uncovered requirement Greater of minimum

for the leg with equity requirement or
the higher naked initial requirement
requirement, plus
the premium of the
other leg

Spread $2,000/$25,0001 Credit Spread: Greater of minimum

Difference in strike equity requirement or
prices x 100 x no. of initial requirement
contracts
Debit Spread:
100% of cost

Complex Spread2 $2,000/$25,0001 Lesser of: Greater of minimum

(apply only to the equity requirement or
• Sum of component
following strategies): initial requirement
initial naked
Box Spreads requirements
Butterfly Spreads • Maximum potential
loss of strategy
Condor Spreads
Iron Butterfly
Spreads
Iron Condor Spreads

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Security Type Initial Min. Equity Req. Schwab Initial Req. Schwab Maintenance Req.

Equity
Naked Calls $25,000 Greater of: Greater of minimum
equity requirement or
• 20% underlying value
initial requirement
– out of the money
amount + premium
• 10% underlying value
plus premium
• $100 per contract

Naked Puts Lesser of $25,000 Greater of: Greater of minimum

or max loss equity requirement or
• 20% underlying value
initial requirement
– out of the money
amount + premium
• 10% Contract Value
plus premium
• $100 per contract or
max loss

Straddle/Combo $25,000 Uncovered requirement Greater of minimum

for the leg with equity requirement or
the higher naked initial requirement
requirement, plus
the premium of the
other leg

Spread $2,000/$25,0001 Credit Spread: Greater of minimum

Difference in strike equity requirement or
prices x 100 x no. of initial requirement
contracts
Debit Spread:
100% of cost

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Security Type Initial Min. Equity Req. Schwab Initial Req. Schwab Maintenance Req.

Equity
Complex Spread2 $2,000/$25,0001 Lesser of: Greater of minimum
(apply only to the equity requirement or
• Sum of component
following strategies): initial requirement
initial naked
Box Spreads requirements
Butterfly Spreads • Maximum potential
loss of strategy
Condor Spreads
Iron Butterfly
Spreads
Iron Condor Spreads

Protective Put Lesser of $2,000 or Lesser of: Greater of minimum

100% market value equity requirement or
• 10% of exercise price
initial requirement
+ out of the money
amount
• Long stock
requirement

Protective Call $2,000 Lesser of: Greater of minimum

equity requirement or
• 10% of exercise price
initial requirement
+ out of the money
amount
• Short stock
requirement

Conversion Lesser of $2,000 10% of exercise price Greater of minimum

or 100% market value equity requirement or
initial requirement

Reverse $2,000 10% of exercise price Greater of minimum

Conversion equity requirement or
initial requirement

Collars with Lesser of $2,000 Lesser of: Greater of minimum

Long Equity or 100% market value equity requirement or
• 10% of exercise
initial requirement
price + put out of the
money amount
• 25% of call
exercise price

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1
IRA account initial minimum requirement for spreads is $25,000; special minimums, when applicable under select offers,
supersede published minimums.
2
All component option legs must have the same expiration date.

Requirements are subject to change at any time by Schwab. To protect itself, Schwab may,
at its discretion and without prior notice to you, revalue securities, reset requirements,
or adjust the inflated SMA (Special Memorandum Account) at any time. Schwab retains
complete discretion to determine how to pair options that may constitute a qualified
strategy. See “Qualified Spreads” below.

Options carry a high level of risk and are not suitable for all investors. Certain requirements
must be met to trade options through Schwab. With long options, investors may lose 100%
of funds invested. Multiple-leg options strategies will involve multiple commissions. Spread
trading must be done in a margin account. Writing uncovered options involves potentially
unlimited risk. Please read the options disclosure document titled Characteristics and Risks
of Standardized Options before considering any option transaction.

Qualified Spreads
A “spread” involves being both the buyer and writer of the same type of options (puts or
calls) on the same underlying interest, with the options having different exercise prices and/
or expiration dates.

The purchased option is required to expire on the same or later expiration date than the
option sold. When there is more than one possible way to pair available options in your
Account, Schwab has the discretion to determine spread pairings. Schwab may pair options
in a manner that does not produce the lowest possible margin requirements.

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©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0919-9HVV)
Debt
Security Type Initial Min. Equity Req. Schwab Initial Req. Schwab Maintenance Req.

Corporate Bond

Corporate Coupon Lesser of $2,000 or 30% of cost Greater of 30% market

Bond 100% market value value or 20% of principal,
not to exceed 100% of
market value

Corporate Bond Lesser of $2,000 or 50% of cost Greater of 30% market

Convertible 100% market value value or 20% of principal,
not to exceed 100% of
market value

Corporate Bond Lesser of $2,000 or 30% of cost Greater of 30% market

Non-Convertible 100% market value value or 20% of principal,
not to exceed 100% of
market value

Government Agency

Government Lesser of $2,000 or 20% of cost Greater of 20% market

Agency Coupon 100% market value value or 15% of principal,
not to exceed 100% of
market value

Government Lesser of $2,000 or 20% of cost Greater of 20% market

Agency Strip 100% market value value or 15% of principal,
not to exceed 100% of
market value

Government Lesser of $2,000 or 20% of cost Greater of 20% market

Agency 100% market value value or 15% of principal,
Pass-Through not to exceed 100% of
market value

Government Lesser of $2,000 or 20% of cost Greater of 20% market

Agency CMO 100% market value value or 15% of principal,
not to exceed 100% of
market value

Municipal Bond

Municipal Bond Lesser of $2,000 or 25% of cost Greater of 25% market

Coupon 100% market value value or 15% of principal,
not to exceed 100% of
market value

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©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0919-9HVV)
 Security Type Initial Min. Equity Req. Schwab Initial Req. Schwab Maintenance Req.

Treasury

Treasury Bill Lesser of $2,000 or 10% of cost 4% of market value

100% market value

Treasury Coupon Lesser of $2,000 or 10% of cost Mat < 2yrs: 4% mkt. value
100% market value 2<= Mat < 5yrs: 6% mkt. value
5<= Mat <10yrs: 8% mkt. value
Mat ≥ 10yrs: 10% mkt. value

Treasury STRIP Lesser of $2,000 or 10% of cost 10% of market value

100% market value

Unit Investment Not Marginable Not Marginable Not Marginable

Trust

State, Municipal, and Corporate bonds, with an investment grade rating (IG) or better, are marginable.

Fixed-income investments are subject to various risks including changes in interest rates, credit quality, market valuation,
liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. For further details, please feel
free to contact a Schwab Fixed Income Specialist at 877-563-7818.

Pattern Day Trading

Day trading is the purchasing and selling, or selling short and purchasing, of the same security
on the same day within a margin account. Exceptions include a long security position (holder
owns the security) held overnight and then sold the next day prior to any new purchase of
the same security, or a short security position (sale of security borrowed from Schwab) held
overnight and then repurchased the next day prior to any new sale of the same security.

A pattern day trader (PDT) is any client who executes four or more day trades within five
business days in the margin account, provided the number of day trades is more than 6% of
the total trades in the account during that period.

Pattern Day Trading Margin Requirements

Pattern day traders must maintain a minimum of $25,000 in equity at all times. On days that
pattern day trader clients begin the day with less than the required minimum of $25,000 in
equity, they will be held to liquidating trades only and will not be permitted to day trade for
that entire day.

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©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0919-9HVV)
Day Trading Buying Power (DTBP) is the amount of securities the client is permitted to day
trade in a margin account without incurring a day trade margin call. Each day’s maximum
DTBP is fixed at four times the FINRA margin maintenance excess in the account as of the
close of business the previous day.

Pattern day traders can find their DTBP on the Account Balances page on Schwab.com.

Schwab does not promote a day trading strategy.

Strategies for Using Margin

Margin for Personal Expenses
Whatever your personal financing needs, a margin loan from Schwab can help. Below is an
explanation of how margin can be used for personal lending.

Can margin only be used to purchase securities?

Margin can be used to purchase securities and for short-term borrowing or cash-flow needs.

Are there any usage issues or restrictions?

If used for real estate, your mortgage provider may not allow the use of borrowed funds for a
down payment.

Duration of loan:
Typically short-term.

Benefits:
• Competitive rates
• No fees to add the margin feature to an account
• No additional applications or credit checks are required to use margin once the feature is
available on your account
• No set repayment schedule as long as minimum equity requirements are met

Risks:
• If the market performs unfavorably, margin borrowing can amplify losses, or could trigger
a margin call
• Margin interest rates may fluctuate
• Maintenance requirements may increase
• See Margin Risks

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©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0919-9HVV)
How to apply:
The margin feature is included with Schwab One accounts unless you opted out at the time of
application. If you do not have the margin feature, you can apply online at Schwab.com.

Is there a setup fee?

No.

How to access funds:

Buy securities, write a check, use your debit card, MoneyLink, or a wire transfer.

Minimum & maximum loan amounts:

• Minimum: No minimum; however, $2,000 account equity is required to use margin
• Maximum: Depends on margin equity

Interest rate information:

View current margin rates here. Interest accrues daily and posts monthly.

Margin might be right for you if:

• You are looking to borrow a small portion of the funds available (low debt-to-equity ratio)
• You need the funds immediately
• You can tolerate the risk of market volatility

Margin may NOT be appropriate for you if:

• You are an inexperienced investor or are very risk-averse
• You have a small or concentrated portfolio
• You would be unable to access outside funds to cover a call or sustain losses

Short Selling
Short selling is a strategy where you sell a security that you have borrowed from Schwab
hoping the price of the security drops in order to buy it back at the lower price. The profit
is the difference between the price at which you sold the borrowed security and the price
you paid to repurchase it, minus the cost of borrowing the security if applicable plus any
interest charges on your debit balance, commissions, and fees. The utilization of this strategy
presumes the price of the security will fall in the future.

The primary risk of short selling is that the price of the stock increases, in which case the
theoretical loss is unlimited.

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©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0919-9HVV)
Short selling can occur only in a margin account that meets the minimum initial equity
requirement of $2,000. Additionally, Schwab may not be able to accept your order if the
security you are attempting to sell short is not available to borrow. In certain situations,
Schwab may borrow hard-to-borrow securities from sources external to Schwab, such as
another brokerage firm; there is a fee for this which the client must agree to pay.

If the lending firm requests the borrowed shares be returned, Schwab will buy-in the shares
which you are short, close out your short position, and deliver those borrowed shares back to
the lending brokerage firm, regardless of the profit or loss to you.

When you short sell a stock, Schwab retains the proceeds of the sale, and industry
regulations require you to make an initial deposit or have additional equity in the account
based on the net proceeds of that sale. In addition, Schwab has minimum equity and
maintenance requirements determined by share price as shown in the charts on
pages 12–23.

Options
An option is a contract giving the owner the right, but not the obligation, to buy (in the case
of calls) or sell (in the case of puts) the underlying security at a specified price for a specified
period of time. The underlying security can be a stock, an exchange-traded fund (ETF),
an exchange-traded note (ETN), or an index. Unlike shares of stock, an option does not
represent ownership in the underlying company. Because it is a contract, it represents the
potential for a change in ownership, but it must be exercised to make that happen.

You must be approved before trading options in your account. Click here for more information
on how to get started with options.

Call options give the holder the right to buy a specified number of shares of the underlying
instrument at the strike price until the contract expires. Put options give the holder the right
to sell a specified number of shares of the underlying instrument at the strike price until the
contract expires. If you own an option, you’re considered to be “long” the position. If you’ve
sold an option you did not own at the time of sale, you’re considered to be “short”
the position.

There are various types of options trading strategies that clients can implement to help
achieve objectives such as hedging risk, capital conservation, generating income, and
speculation. Margin requirements for these options trading strategies are detailed here.
Below we have described some of the more common equity-based options strategies, some
of which require clients to have an active margin feature on their account.

Long options and cash-secured equity put writing strategies are commonly used for growth
and speculation.

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©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0919-9HVV)
• Long Calls. Buying a call gives you the right (but not the obligation, unless auto-exercised)
to buy the stock at the strike price at any time up until the option expires. Exercising the
option allows you to “call” away the stock from the option seller for the strike price, which
is presumably less than its current market value.
• Long Puts. Buying a put gives you the right, (but not the obligation, unless auto-
exercised) to sell the underlying stock at the strike price until the option expires. Exercising
the option allows you to “put” the stock to the option seller for the strike price, which is
presumably higher than its current market value.
• Long Straddles. A long straddle involves the simultaneous purchase of a call and a put
on the same underlying security, having the same expiration and the same strike price.
Buyers of long straddles anticipate a significant movement in the underlying security by
expiration, but are unsure of whether the move will be higher or lower. The strategy may
be profitable if the movement in the underlying security exceeds the cost of the combined
premiums paid for the long call and long put. The “break-even” points for this strategy are
equal to the strike price plus and minus the combined premiums.
• Long Combos. Long calls and long puts on the same underlying security but with
different strike prices or expiration dates.
• Long Strangle. A long strangle involves the simultaneous purchase of a call and a put on
the same underlying security having the same expiration, but with different strike prices.
Similar to a long straddle, buyers of a long strangle anticipate a significant movement in
the underlying security but purchase the out-of-the-money calls and puts to decrease the
combined cost of the long call and long put.
• Cash-Secured Equity Put Writing. Short puts in which the assignment value of the
short put is covered by sufficient cash (or cash equivalents) within the account. Put
sellers, whether naked or cash-secured, attempt to purchase securities they want to
own at a lower price through assignment, or simply collect the premium if the put expires
worthless.

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©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0919-9HVV)
Covered and protective option strategies are commonly used, respectively, for generating
income and hedging.

• Covered Calls. A covered call strategy is when an investor has a long stock position and
typically writes (sells) 1 call option for every 100 shares of the underlying stock owned.
Investors who initiate a covered call position seek to generate extra income while holding
their stock position with the assumption that the position may be called away if the short
call closes in the money by expiration (seller is assigned). Downside protection on covered
calls is limited to the amount of premium received, and profit potential is limited to the
strike price plus premium received.
• Covered Puts. A covered put strategy is when an investor has a short stock position
and typically writes (sells) 1 put option for every 100 shares of the underlying stock sold
short. Investors who initiate a covered put position seek to generate extra income while
maintaining their short position with the assumption that the stock may be put to them
at the strike price of the short put if it closes in the money. Upside protection on covered
puts is limited to the premium received, and profit potential is limited to the strike price
plus premium received.
• Protective Calls. A protective call is when an investor has a short stock position and
purchases one or more calls on the same underlying security. Buyers of protective calls
seek to protect their short position by locking in a buy price for the duration of the call
contract purchased. Protective calls will decrease your overall sales proceeds.
• Protective Puts. A protective put is when an investor has a long stock position and
purchases one or more puts on the same underlying security. Buyers of protective puts
seek to protect their long position by locking in a selling price for the duration of the put
contract purchased. Using protective puts increases your cost basis in the underlying
security.
• Collar. A collar strategy is when an investor has a long stock position along with a long
put and short call on the same underlying security. Investors who initiate a collar strategy
seek to buy protection on their stock position by purchasing the put, and simultaneously
selling a call to offset the cost of the put. This strategy will offer protection to the
downside but also limit the upside gain on the stock, which effectively places a “collar” on
your stock position.

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©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0919-9HVV)
For more information on options trading strategies, click here. Or contact a Schwab
professional by calling 877-594-6324.

Options carry a high level of risk and are not suitable for all investors. Certain requirements
must be met to trade options through Schwab. With long options, investors may lose 100%
of funds invested. Multiple-leg options strategies will involve multiple commissions. Spread
trading must be done in a margin account. Writing uncovered options involves potentially
unlimited risk. Please read the options disclosure document titled Characteristics and Risks of
Standardized Options.

Sales & Withdrawals

Selling Stock
When you sell stock originally purchased on margin, your profit or loss is determined by your
sale proceeds on the stock. You receive all the net profit or assume all the loss depending on
the profitability of the sale.

Example Scenario*
If you buy 100 shares of stock at a price per share of $100, your current market value is
$10,000. Since the Federal Reserve Board’s Regulation T allows you to borrow 50% of this
from Schwab, you could deposit $5,000 in your margin account and Schwab would loan
you $5,000.

Current Market Value – Margin Balance = Equity

$10,000 – $5,000 = $5,000

If the price of the stock goes up. You have paid only a portion (50%) of the purchase
price of the stock, but you receive 100% of the net profit. If your stock is worth $120 per
share when you sell it, you would receive the proceeds from the sale of the stock less the
margin loan.

Market Value at Sale – Margin Balance = Equity (Net Profit/Loss)

$12,000 – $5,000 = $7,000 ($2,000)

If the price of the stock goes down. You pay only a portion of the purchase price of the
stock, but you take 100% of the loss. If your stock is worth $60 per share when you sell it,
you would receive the proceeds from the sale of the stock less the margin loan.

Market Value at Sale – Margin Balance = Equity (Net Profit/Loss)

$6,000 – $5,000 = $1,000 (–$4,000)
*The calculations in these examples do not take into account interest charges, commissions, or fees.

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©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0919-9HVV)
Substitutions
Substitution is the buying and selling of marginable securities in a margin account on the
same trading day. For each dollar of securities sold, an equal dollar amount of marginable
securities can be purchased, assuming that the securities have the same maintenance
requirements.

If your purchase exceeds the amount of the sale, you are required to deposit the initial
Regulation T requirement of 50% of the difference between the funds received and the funds
needed to purchase the new security. The funds available in your margin account will be used
to meet the federal requirement. To see how this works, review the following example:

Action # of Shares Stock Price Value

Buy shares of Company X 100 $100 $10,000
Sell shares of Company Y 100 $80 $8,000

The difference is $2,000. Since $2,000 x 50% = $1,000, the amount you would need
to deposit is $1,000. Please note that this example does not take into account interest
charges, commissions, or fees.

If the amount of the sale exceeds the amount of the purchase, you may not be required to
deposit additional funds to meet the initial margin requirement for the security that is
purchased. The funds received from the sale will be credited to the account and will be
available to purchase the new security. Therefore, the initial margin requirement for the new
security will be satisfied from the sale proceeds, assuming that both marginable securities
have the same maintenance requirement.

Withdrawals
You may withdraw cash from your margin account if you have available funds in excess of your
initial equity and maintenance requirements. The cash may be withdrawn from your margin
account at any time, subject to the availability of any recently deposited funds.

The available funds in your margin account are composed of the cash balance in the
account, if there is one, plus the amount of money available from a margin loan against your
marginable securities. The amount available for withdrawal is subject to the preservation of a
minimum amount of equity in the account. The same rules apply to the withdrawal of stock
from your margin account.

The amount of funds you have available to withdraw or trade is shown on the Account
Balances page on Schwab.com.

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©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0919-9HVV)
Glossary
Collateral – Any assets available to secure repayment of a loan. Collateral can be seized by a
lender and sold to cover the loan if a borrower defaults.

Collateralized Mortgage Obligation (CMO) – A type of mortgage-backed security that

creates separate pools of pass-through rates for different classes of bondholders with varying
maturities, called tranches. The repayments from the pool of pass-through securities are
used to retire the bonds in the order specified by the bonds’ prospectus.

Convertible Security – Securities (usually preferred shares or bonds) that are exchangeable
for a set number of another form (usually common shares) at a pre-stated price.

Corporate Bond – Debt instrument issued by a private corporation, versus a government

agency or municipality.

Day Trading – Purchasing and selling or selling and purchasing of the same security on the
same day.

Day Trading Buying Power (DTBP) – Amount of securities the client is permitted to day trade
in a margin account without incurring a day trade margin call. Each day’s maximum DTBP is
fixed at four times the regulatory maintenance margin excess in the account as of the close of
business the previous day.

Equity – Amount of money in an account that reflects the account holder’s ownership
position.

Exchange-Traded Fund (ETF) – A fund that holds a portfolio of securities, such as stocks or
bonds, and trades like a stock. An ETF is a kind of fund that can give you diversified exposure
to a particular segment of the market (large-cap U.S. stocks, for example), a specific industry,
or a geographical region.

Exchange-Traded Note (ETN) – A senior, unsecured, unsubordinated debt security issued

by an underwriting bank. Similar to other debt securities, ETNs have a maturity date and
are backed only by the credit of the issuer. ETNs are designed to provide investors access
to the returns of various market benchmarks. The returns of ETNs are usually linked to the
performance of a market benchmark or strategy, less investor fees.

Federal Reserve Board – Governing board of the Federal Reserve System that regulates
credit, establishes policies on matters such as reserve requirements and other bank
regulations, and sets the discount rate.

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©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0919-9HVV)
Financial Industry Regulatory Authority (FINRA) – Largest independent regulator for all
securities firms doing business in the United States. Formerly NASD.

Hedging – Strategy used to offset investment risk.

Leverage – Use of debt to supplement investment. Leverage allows greater potential returns
to the investor that otherwise would have been unavailable, but the potential for loss is also
greater because if the investment becomes worthless, the loan principal and all accrued
interest on the loan still need to be repaid.

Liquidation – Closing out a position or the forced sale of a brokerage client’s securities to
meet a margin call.

Maintenance Call – Issued when the value of margined securities plus any cash balance in
an account is less than the maintenance requirement of the margined securities (typically
30% for equity securities).

Maintenance Requirement – Equity level that must be maintained in a margin account, as

required by NYSE, FINRA, and individual brokerage firms.

Margin – Purchase of securities with money borrowed from a broker.

Margin Call – Issued when the value of margined securities plus any cash balance in
an account is less than the required amount. Margin calls include Regulation T calls,
maintenance calls, and minimum equity calls.

Marginable Stocks – Securities that can be bought or sold in a margin account, or which can
be used as collateral for a margin account.

MoneyLink® – Service provided by Schwab that allows the transfer of funds between Schwab
and other financial institutions at regularly scheduled intervals and/or on an ad hoc basis.

Mortgage-backed Security – An asset-backed security or debt obligation that is secured by

a mortgage or collection of mortgages.

Municipal Bonds – Debt instrument issued by a state or local government entity.

National Association of Securities Dealers (NASD) – See FINRA.

National Association of Securities Dealers Automatic Quotations (NASDAQ) – Largest U.S.

electronic stock market. With approximately 3,200 companies, it lists more companies and,
on average, trades more shares per day than any other U.S. market. NASDAQ is the primary
market for trading NASDAQ-listed stocks.

New York Stock Exchange (NYSE) – Now NYSE Euronext, this exchange group is comprised
of equities and derivatives exchanges across the United States and Europe which trade cash
equities, futures, options, fixed-income, and exchange-traded products. NYSE Euronext has
over 8,000 listed issues.
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©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0919-9HVV)
Options – Contract giving the owner the right, but not the obligation to buy (calls) or sell
(puts) the underlying instrument at a specified price for a specified period of time.

Pattern Day Trader – Trader who executes 4 or more day trades within 5 business days in a
margin account, provided the number of day trades is more than 6% of the total trades in the
account during that period.

Regulation T – Federal Reserve Board regulation covering the extension of credit to clients by
securities brokers, dealers, and members of the national securities exchanges. It establishes
initial margin requirements and defines eligible securities.

Securities – General term that usually refers to stocks and bonds, but which can refer to any
investment product.

Securities and Exchange Commission (SEC) – Federal agency that enforces laws governing
the securities industry.

Short Sale – Sale of securities not owned by the seller. The seller borrows stock for delivery
anticipating a drop in price and then buys the stock later at the lower price.

Special Memorandum Account (SMA) – The SMA is a “bookkeeping” account used to

record the amount of margin credit that can be extended to clients under the rules of
Regulation T as governed by the Federal Reserve. SMA balances are used in calculating
the amount of funds that may be withdrawn from the account or applied to new margin
transactions.

Separate Trading of Registered Interest and Principal (STRIPS) – Securities that let
investors hold and trade the individual interest and principal components of eligible Treasury
notes and bonds as separate securities.

Uniform Gift to Minors Act (UGMA) / Uniform Transfer to Minors Act (UTMA) – Laws
adopted by most states allowing an adult to contribute to a custodial account in a minor’s
name without having to establish a trust or name a legal guardian. Thus, minors can have
securities bought and money invested in their names, but the custodian is responsible for
managing the funds in the account.

Unit Investment Trust (UIT) – An investment company that offers a fixed, unmanaged
portfolio, generally of stocks and bonds, as redeemable “units” to investors for a specific
period of time. It is designed to provide capital appreciation and/or dividend income. UITs are
one of three types of investment companies; the other two are mutual funds and
closed-end funds.

Warrant – Security that entitles the holder to buy stock of the issuing company at a specified
price, which can be higher or lower than the stock price at time of issue.

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©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (0919-9HVV)
For clients located in the United States and Hong Kong, margin products and services are provided by
Charles Schwab and Co. Clients residing in the EU, excluding residents of the U.K. and Switzerland, are
not eligible for margin. In addition, clients residing within Europe, including the U.K., are restricted from
using their available margin loan value to withdraw funds from their accounts. For specific questions not
addressed here, please contact us at 877-752-9749 (within the U.S.), or +1-415-667-8400 (outside of the
U.S.).

For Clients of Charles Schwab Singapore Pte. Ltd. (“Schwab Singapore”), Schwab Singapore (holding a
capital markets services license issued by the Monetary Authority of Singapore and an Exempt Financial
Adviser as defined in the Financial Advisers Act) provides you with all the products and services and
maintains the account relationship with you. Schwab Singapore outsources some functions and services to
Charles Schwab & Co., Inc. and Charles Schwab Futures, Inc. (collectively referred as “Schwab”) relating to
securities and futures respectively. You may receive communications or materials directly from Schwab.
For all queries relating to products and services, please contact Schwab Singapore at:

Phone +65-6536-3922

Fax +65-6536-1151

1 George Street, #07/01A

Singapore, 049145

Or visit www.schwab.com.sg.

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©2019 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.
CC3336786 (0919-9HVV) MKT105883-02 (09/19) 00234665