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Zecco.com » General Investing » Margin Trading » Another Margin Question
Last post 08-21-2008, 1:32 AM by trader2k8. 6 replies.
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  •  07-03-2008, 5:49 PM 32960

    Another Margin Question

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    Hi All,

    I have only had a margin account for a couple of weeks. Prior to that, I had a cash account and had to wait 3 days after selling a stock to use the money to buy another. With a margin account, this is no longer the case but I don't understand if I am charged for doing so in a margin account or if this is just one of the perks. Can I sell a stock at 2:00 and buy another at 3:00 without being charged any fees in a margin account or are there fees of which I am not aware?

    Thanks!

    Brad

  •  07-03-2008, 6:04 PM 32963 in reply to 32960

    Re: Another Margin Question

    Reply Quote
    Well, you'll be using margin so you'll incur daily interest until the cash settles, but only a small amount.

  •  07-03-2008, 7:00 PM 32967 in reply to 32963

    Re: Another Margin Question

    Reply Quote

    Thanks for the prompt reply. When you say "but only a small amount," what exactly do you mean? How do I calculate this? Also, where does it show up in my records? I don't see any indication of this.

    Thanks,

    Brad

  •  07-03-2008, 10:19 PM 32978 in reply to 32967

    Re: Another Margin Question

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    The amount per day is 1/365th of 7.20% which is about 0.0197% (it's a much longer number but we'll ignore that.)

    It is very helpful to think of margin as a credit card account for stocks where interest is charged daily instead of monthly. When you don't have the cash to cover a sale, the margin is tapped to cover the difference. When cash comes into your account, it is automatically used to clear out any margin you have, An example will make this easier to understand:

    You have $2000 in your account plus shares worth $3000. You sell the shares, but do not want to wait the three days to utilize the money. You buy $3000 worth of a new stock. Since you don't have enough cash, Zecco automatically uses $1000 of margin to make up the difference.

    For the next three days you would accrue .0197% additional margin per day which in this case would be about 20 cents. (Margin becomes additional debt and incurs interest in turn, but it's not enough here to make one penny's difference.)

    Three days later the $3000 comes into your account. $1000.60 goes to cover your current margin balance, leaving you 1999.40.

    These numbers may be a penny or two off but you get the idea...

  •  07-04-2008, 9:55 AM 32994 in reply to 32978

    Re: Another Margin Question

    Reply Quote
    Thanks so much for your help. That answers my question.

  •  07-05-2008, 9:07 AM 33041 in reply to 32978

    Re: Another Margin Question

    Reply Quote

    According to your example you are charged interest on unsettled transactions, which is absurd.  The truth is that you are charged interest on borrowed funds.  Since both trades settle on the same day there would be no interest charged, since you are not borrowing anything.  Further, interest on margin accounts has always been based on a 360 day year.  I did not go through the trouble of checking whether Zecco follows this convention but the rest of the securities industry does.

  •  08-21-2008, 1:32 AM 35934 in reply to 32978

    Re: Another Margin Question

    Reply Quote

    hello , i'm trader2k8 , i have another question in this point........okay i know this, but in the case that i have all my cash money in the stock that i just sell and $ 0 balance on the margin acct. , waitting for the procced of the sale ( t + 3 ) to be settled back in my acct. ,  can i still be able to buy on marging the next day ( t + 1 )...........?  I have heard from charles scwab custome rep. that in a marging acct. there's no ( t + 3 ) , the money it's available the next traiding day , can somebody comfirm this............

                           thanks ..... trader2k8

      
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