Mohacsy's Safe Portfolio Member Forum

[Elroy Jetson]

"Limited Margin" doesn't allow you to invest more money than you have in your Roth account.

Limited Margin allows Fidelity and Schwab to extend you "a courtesy" of avoiding SEC settlement rules. Limited Margin makes your retirement investments safer.

"Limited Margin", which requires a balance of at least $25k in your Roth account, allows you to trade ALL of the money in your Roth account, regardless of whether it is "T+2 Settled Money" or merely your retirement money which is not yet "settled", eliminating "Trading Violations" which is just brilliant.

Fidelity and Schwab can't charge me interest for using my unsettled money because margin, the way you think of it, is not allowed in retirement accounts. How did this manage this last year? I don't care.

"Limited Margin" solves an annoying problem where you (A) sell a security and use that money to buy another security before the settlement date of the security you have sold.

If you then want to or need to sell the second security it generates this error message

"The sell order you are about to place includes shares that are not yet settled (paid for), which will create a "Cash Account Trading Violation". https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations Three "Cash Account Trading Violations" penalizes you for 90 day to follow "cash trading rules" eliminating your ability to do (A) as outlined above. You can't make any trade until the cash is settled.

An example, due to my own carelessness, I once typed in the wrong symbol when buying something. Realizing the mistake on the confirmation, I immediately sold this wrong security and took "a trading violation". With "Limited Margin" on my account I can immediately correct my mistake without having to risk limitations being imposed on my investments for 90 days.

If you're accustomed to a normal trading account, the bizarre rules for retirement accounts are really annoying, making retirement account unwieldy for trading.


Another Fidelity innovation:

This may sound bizarre, but let's say I have $18k of cash in my Roth and want to buy 100 shares of Amazon at 179.52 per share for a total of $17,952

Merrill won't let me do this because Merrill doesn't trust their trading platform, so "It exceeds 90% of your available balance" and admittedly the transacted price might be a little different. So I can only buy 90 shares, then another 9 shares, then finally 1 more share - which is perfectly asinine.

Fidelity will let me buy all 100 share at once. If the transacted limit will exceed your available cash by more than some limit like $3, they won't let you place the trade. A couple of years ago I placed a trade which created a negative balance of $1.64 which remained until I received a dividend, or until I sold something, with no interest charges which aren't allowed in Roth and IRA accounts - which is perfectly sensible. I suspect their maximum internal limit for this is pretty small.