Margin accounts

Discussion in 'Learn how to trade or invest by asking questions' started by seen, Mar 26, 2012.

  1. seen

    seen New Member

    Hi everyone,

    I've been a lurker for quite sometime, just registered now because I couldn't find this answer in the search anywhere.

    This might sound silly, but I've never had a margin account setup. I realize that with different brokers there are different policies, but generally speaking if I understand this correctly you can get a margin account for twice your equity (or more if it's a portfolio margin), and that there is a minimum percentage you must be invested in with a stock or be threatened with a margin call.

    I've been getting mixed signals on the following: If I have a 25k account, and I place an order for 10k, can I get the other 10k on margin eventhough I have 15k leftover equity? Or do I have to spend my own 20k money first, and only use the margin when my money has run short? ie. 20k on a stock, and 5k on another stock with 5k on margin?

    Also, I've read that some places allow a 4:1 margin account. Do you not need to initially invest with 50% of the stock?

    I'm just trying to figure out how to best optimize a margin account since it doesn't have the same T+3 regulations as equity accounts. Thanks! :)
  2. LongArm

    LongArm Member

    Your own money is used before margin is used. If this were not the case, many would be charged margin interest unnecessarily, which would make for a lot of unhappy campers (to put it mildly).

    4:1 margin is available to those who have at least $25k in their account and have been flagged as pattern day traders. The 4:1 is for the DAY ONLY--overnight positions are still limited to 2:1.
  3. seen

    seen New Member

    I appreciate the quick response!

    I have a follow-up question. If my own money has to be used before the margin, then in the above example with 25k equity and 25k margin, does that mean once I spend 25k of my own money I can spend another 25k margin? Meaning 0% personal investment on an individual stock?

    Thank you.
  4. LongArm

    LongArm Member

    Right, assuming you're buying a marginable security, which not all of them are. Be careful though--just because you're borrowing the broker's money to buy doesn't make you any less accountable for losses. I would recommend NOT using margin until you have plenty of experience and a proven methodology (if then).
  5. seen

    seen New Member

    I understand..

    My original plan however was to start with 50k and I don't plan on keeping any stocks overnight, so if I use a margin there shouldn't be any additional charges yes? (other than the losses of course)

    So, if I instead start with 25k equity and 25k margin it shouldn't make any difference to me from a gain/loss standpoint, other than the fact that half the money can be used daily instead of having to wait 3 days for settles.. or am I still misunderstanding something?

    Thanks in advance. :):)
  6. LongArm

    LongArm Member

    There are no charges for using margin intra-day.

    However, it sounds like you are going to day trade in which case you'll want to have well OVER $25k in your margin account. That would give you a cushion above the required minimum account balance for pattern day trading.
  7. seen

    seen New Member

    I'm sorry, by "additional charges" I meant the margin interest.

    Given everything you've told me, if I have $50k of my own cash and have another $50k on margin, and I use $75k daily to keep the $25k SEC minimum, will I be charged interest on the borrowed $25k if I buy and sell the stock on the same day?

    I do plan to fully make sure I know what I'm doing before I even consider taking on a margin account, but I really just wanted to know what the exact consequences are. You've been most helpful and very patient with a buffoon such as myself, thank you :)
  8. LongArm

    LongArm Member

    Nope. As I said, there are no charges for using margin intraday.

    BTW, it's good to learn as much as you can before jumping in. It's amazing to me how many people show up on these forums asking these kinds of questions AFTER they've already bought something.

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