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Zecco.com » General Investing » Margin Trading » Help for Newbie
Last post 04-27-2008, 2:40 PM by Robert13212. 2 replies.
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  •  04-27-2008, 10:12 AM 27887

    Help for Newbie

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    Novice investor here but tyring to learn. These are my current balances:

    Cash        2754.00

    Market Value    13336.00

    Maint. Excess     9712.00

    Buying power   19425.00

    What does the Maint. Excess number represent? How is the Buying Power number arrived at (I understand that it has to do with Margin)? Do I need to have an actual cash balance to when I buy a stock on margin or can I have a zero cash balance in my account and use the available buying power shown.? If I decide to buy a stock on margin should I first withdraw the cash portion of my account so that I have cash on hand to cover a margin call?  Given the current balances above, less the cash, if I bought 10,000 worth of stock on margin how much precentage wise would that stock have to drop before it triggered a margin call? Also if I did buy 10,000 worth of stock on margin and kept it for one month what would the interest be for that one month at 7.2%. I would greatly appreciate any information that would contribute to my education :-) Thank you.

     

  •  04-27-2008, 1:00 PM 27893 in reply to 27887

    Re: Help for Newbie

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    I will answer your questions in the order you posted. Maintenance excess represents the difference between your Market value and the maintenance requirement (which is usually 40% of your Market value, depending on the volatility of stocks you have bought). Your buying power is twice the maintenance excess. You do not have to have cash to buy on margin, but you can use only up to your buying power. Any time your Market Value drops below 2.5 times your Maintenance requirement, you will receive a margin call on the difference. So for your example, if you buy $10000 worth of stocks, your numbers will change as follows:

    Cash: -7246.00 (that is 2754-10000)

    Market Value: 23336.00

    Maint. Excess: 4712.50 (that is 9712-10000/2)

    Buying power: 9425.00

    To maintain 23336 on margin your net account value should be no less than 23336/2.5=9334.40, and according to your numbers, yours will be 23336-7246=16090. Now, if your market value drops to 12076 (from 23336), you will receive a margin call, for your net account value will be 12076-7246=4830, and since 4830*2.5=12075, it will not be enough to maintain 12076 on margin. Your interest on margin will be (your negative cash balance)*0.072/360 per day, in your example it is 7246*0.072/360=$1.45 per day. I hope this helps.

  •  04-27-2008, 2:40 PM 27898 in reply to 27893

    Re: Help for Newbie

    Reply Quote
    Thank you very much for your easy to understand example. I greatly appreciate you taking the time to answer my question. Thank you. 
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