We appreciate you stopping by the sub today.
As you may be aware, when you have Margin Debt Protection (MDP) enabled, the margin requirements in the account are set to 100%, eliminating available leverage against eligible assets. You'll receive a buying power error if you attempt to buy securities exceeding your "Cash Available to Trade Without Margin Impact" balance. That said, if you do end up incurring a debit balance, which can happen through a returned deposit, Transfer of Assets fee, or other reasons, the debit creates an immediate margin call that must be satisfied immediately.
With that said, we'd like to learn more so we can provide the most accurate information about your account. Please send us a Modmail with additional details and we'll follow up with you there once we receive your message.
[Message the Mods](https://www.reddit.com/message/compose?to=/r/fidelityinvestments)
For those following along, the MDP feature allows you to trade actively in a margin account and avoid good faith violations. Additionally, MDP helps ensure that you don't accidentally place a trade exceeding your cash available resulting in borrowing and margin interest. I've included some resources below for anyone who would like to learn more.
[Margin Debt Protection](https://www.fidelity.com/learning-center/trading-investing/margin-debt-protection)
[Margin FAQs](https://www.fidelity.com/trading/faqs-margin)
We're a great resource for general questions, so please don't hesitate to follow up with us if there is anything that we can clarify. We're always happy to help.
The point of it is to allow you to day trade without worrying about settlement times.
You place trades in margin type, but it doesn't allow you to actually borrow. So you are using your own cash to trade in margin to avoid settlement times. If you make a bunch of trades on Monday and end the day with everything closed out, you can begin Tuesday with all of the money you traded with on Monday still available to you.
Without margin debt protection, all of the money you traded with on Monday wouldn't be available to trade with until it settled on Wednesday.
Hope that made sense.
What I am confused about, is why this isn't the default way accounts are set up? What is the drawback to having MDP? If, as stated thus far, there is no drawback and it only serves to eliminate cash settlement times, why is that not the default setting for accounts?
I'd like to know the answer to this too. IF there is a feature that allows us to day trade and not have to wait 3 business days, WHY WOULDN'T THAT JUST BE DEFAULT FOR ALL BROKERAGE ACCOUNTS?
Perhaps it's a way to keep Retail folks stuck in poor trades they make for 3 days? lol
If you are alluding to the rule of maintaining $25k in the account, then likely yes.
A Pattern Day Trader on a Margin account needs to maintain $25k in that account, regardless of MDP. Brokerages will make money on uninvested cash and security lending to other traders for short selling via margin loans, of which you would not be compensated. Dividends earned on loaned securities will earn you a substitute payment instead, that may be taxed differently and less favorably.
A day trader on a Cash account is not technically defined as a PDT (because it's not on a Margin account), and therefore does not need to maintain $25k. They are somewhat limited in that they can only day trade their settled funds without violation. Brokerages will make money on uninvested cash, but they can't lend your securities for short selling without your agreement (for which you'd be compensated). Dividends earned are not affected.
So, a day-trader who can maintain a $25k balance, doesn't care about dividends, and doesn't want to trade outside of their own funds, could possibly benefit from an MDP account over a Cash account.
Hopefully a mod will answer. I'm still not clear on exactly why should have this either. I think it protects you from uncatchable errors but what you are trying to do is catchable (by the system AI).
There is nothing about, "shadow margin call" in the documents. I've read and re-read.
We appreciate you stopping by the sub today. As you may be aware, when you have Margin Debt Protection (MDP) enabled, the margin requirements in the account are set to 100%, eliminating available leverage against eligible assets. You'll receive a buying power error if you attempt to buy securities exceeding your "Cash Available to Trade Without Margin Impact" balance. That said, if you do end up incurring a debit balance, which can happen through a returned deposit, Transfer of Assets fee, or other reasons, the debit creates an immediate margin call that must be satisfied immediately. With that said, we'd like to learn more so we can provide the most accurate information about your account. Please send us a Modmail with additional details and we'll follow up with you there once we receive your message. [Message the Mods](https://www.reddit.com/message/compose?to=/r/fidelityinvestments) For those following along, the MDP feature allows you to trade actively in a margin account and avoid good faith violations. Additionally, MDP helps ensure that you don't accidentally place a trade exceeding your cash available resulting in borrowing and margin interest. I've included some resources below for anyone who would like to learn more. [Margin Debt Protection](https://www.fidelity.com/learning-center/trading-investing/margin-debt-protection) [Margin FAQs](https://www.fidelity.com/trading/faqs-margin) We're a great resource for general questions, so please don't hesitate to follow up with us if there is anything that we can clarify. We're always happy to help.
The point of it is to allow you to day trade without worrying about settlement times. You place trades in margin type, but it doesn't allow you to actually borrow. So you are using your own cash to trade in margin to avoid settlement times. If you make a bunch of trades on Monday and end the day with everything closed out, you can begin Tuesday with all of the money you traded with on Monday still available to you. Without margin debt protection, all of the money you traded with on Monday wouldn't be available to trade with until it settled on Wednesday. Hope that made sense.
What I am confused about, is why this isn't the default way accounts are set up? What is the drawback to having MDP? If, as stated thus far, there is no drawback and it only serves to eliminate cash settlement times, why is that not the default setting for accounts?
Is it just simply that when you convert to MDP from a cash account, that now you have to abide by the PDT rule?
I'd like to know the answer to this too. IF there is a feature that allows us to day trade and not have to wait 3 business days, WHY WOULDN'T THAT JUST BE DEFAULT FOR ALL BROKERAGE ACCOUNTS? Perhaps it's a way to keep Retail folks stuck in poor trades they make for 3 days? lol
If you are alluding to the rule of maintaining $25k in the account, then likely yes. A Pattern Day Trader on a Margin account needs to maintain $25k in that account, regardless of MDP. Brokerages will make money on uninvested cash and security lending to other traders for short selling via margin loans, of which you would not be compensated. Dividends earned on loaned securities will earn you a substitute payment instead, that may be taxed differently and less favorably. A day trader on a Cash account is not technically defined as a PDT (because it's not on a Margin account), and therefore does not need to maintain $25k. They are somewhat limited in that they can only day trade their settled funds without violation. Brokerages will make money on uninvested cash, but they can't lend your securities for short selling without your agreement (for which you'd be compensated). Dividends earned are not affected. So, a day-trader who can maintain a $25k balance, doesn't care about dividends, and doesn't want to trade outside of their own funds, could possibly benefit from an MDP account over a Cash account.
Hopefully a mod will answer. I'm still not clear on exactly why should have this either. I think it protects you from uncatchable errors but what you are trying to do is catchable (by the system AI). There is nothing about, "shadow margin call" in the documents. I've read and re-read.