Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
If broker makes a margin call, I understand them demanding more money be deposited into the margin account by the customer to make up for the loss, but i've also read that selling off some of the securities can be an option...but I dont understand how that would help on the brokers side? Would it be to just mitigate risk on their end even though they've already sustained a loss on the borrowed money? I'm a little confused on that part.
Well, I think your margin account can be only so much percentage of your balance of your holdings. If that balance/value goes down then your percentage goes down that you can use on margin. So you get a margin call to get that percentage right again. I think most folks sell stuff rather than putting more money in to cover it.
They have not sustained a risk..you have.. that is what margin is about. You get the benefit of using their money and you take the risk of loosing their money, but the loses are yours. Either transfer funds to your account to make the margin requirement or liquidate assets to meet the requirement otherwise they will do it for you and it will most likely not be at the best price.. You can usually do better. If you have any questions call your broker asap because you need to meet the margin requirements very quickly or they will meet them for you.
Good luck and when dealing with margin accounts you really need to keep on top of market fluctuations. If you have a day job and cannot respond quickly to a volatile market get off margin immediatley for you own good, It can be very stressful in the kind of volatile market we are now in
If broker makes a margin call, I understand them demanding more money be deposited into the margin account by the customer to make up for the loss, but i've also read that selling off some of the securities can be an option...but I dont understand how that would help on the brokers side? Would it be to just mitigate risk on their end even though they've already sustained a loss on the borrowed money? I'm a little confused on that part.
Brokers rarely lose money on margin accounts. One of the ways they protect themselves is through margin call. The borrower is typically required to maintain a 25% equity in the margin account. A margin call is made when this equity falls below 25%. Let's see how this works. A customer opens a $100k margin account. He or she deposits $50k and the other $50k comes from the broker in the form of a loan. Following the advice of stock gurus on CNBC , this person bought C stock for $100k. The stock kept going down for two weeks with a 40% loss. His or her margin account now only has $60k in it. The equity this person has in the account is now $10k ($60k - $50 = $10k). Since 25% of $60k is $15k, this person now faces a maintenance margin call of $5k. He or she has two options: send the broker more money or don't meet the margin call.
On a margin account you are borrowing money from the brokerage. The maximum percentage of margin allowable is set by the SEC and it changes from time to time. You pay interest on this money that you have borrowed. The combined amount of your money and the amount you've been approved for margin can then be used for investing.
If you buy a stock that goes down to a point at which you get a margin call one of three things must happen before the 3 day legal settlement limit - 1) you must send enough money to get your proportion of account equity up, 2) you can sell the stock (at a loss, or if you have other stock somewhere that may not have gone down), or 3) they will sell your stock for what they can get if you haven't done any of the previous two options to cover your shortfall and bring the account back into percentage balance.
Margin is not recommended for inexperienced traders, nor for those on a short financial string and more than likely wouldn't be approved by the brokerage.
One thing to keep in mind......you pay interest on the margin that you are borrowing. Make sure that if you are using the brokers money you are making enough to cover the cost of interest charged.
Margin is fine but you have to be a pretty savvy trader to manage it well.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
34,763 posts, read 58,190,820 times
Reputation: 46265
Quote:
Originally Posted by martinez4
...
Margin is fine but you have to be a pretty savvy trader to manage it well.
...
and it is handy to know the broker may be taking positions against you ...
be wise, if you are using it for options, you are playing with 'the-big-boys'. They win or loose more everyday that most of us could stomach.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
thank you, you guys were very helpful
