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Zecco.com » General Investing » Margin Trading » How does buying power work?
Last post 05-16-2008, 8:35 PM by LBemis. 8 replies.
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  •  04-27-2008, 8:13 AM 27886

    How does buying power work?

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    I am new to zecco , and margin trading. Friday I had a Total Equity balance of about $5500.00 all of it stock except for about $100 cash and $400 options. My buying power said it was $5045.00 dollars. I purchased about $4500 dollars worth of stock , all in big marginable securities. Most everything I own went up on Friday, My total equity now is about $5900 and my cash balance is negative $4300, I have a buying power of positive $137.00 , but I received a Reg T margin call for $2037.00. Can anyone tell me why?
  •  04-27-2008, 10:40 AM 27888 in reply to 27886

    Re: How does buying power work?

    Reply Quote
    You get the Reg T Margin Call because you have Insufficient Overnight Buying Power (ONBP) to satisfy initial requirement on opening transactions.  If you don't take care of this by the next day, your brokerage has the right to liquidate some of  your position.   Since you borrowed almost to the maximum amount (carry a buying power with only +137 over night = very bad idea = don't do this again), the market could easily drop a couple percent during the after hour market and you will end up with Margin Call.

    Some friendly advices, next time, before you decide to buy on margin, ask yourself a question "can I make more than 8% profit with this trade?",  if the answer is no, don't do it.  Whatever your answer may be, do not borrow near the maximum amount.
  •  04-27-2008, 1:59 PM 27894 in reply to 27888

    Re: How does buying power work?

    Reply Quote
    I made six percent on the trade just Friday, I appreciatte your advice but still why did I get the margin call?
  •  04-27-2008, 5:12 PM 27912 in reply to 27894

    Re: How does buying power work?

    Reply Quote
    abrentpledger:
    I made six percent on the trade just Friday, I appreciatte your advice but still why did I get the margin call?


    If you give me a list of stock symbols that you are currently holding over night, may be I can tell you why you get a margin call.  Some stocks require more margin maintenance than others.  Stock like ETFC or BSC may require 100% margin maintenance (meaning you can't buy on borrowing money) because your brokerage firm fears that those company may be heading for bankruptcy...  Of course, penny stocks definitely require very high margin maintenance.  
  •  04-27-2008, 5:17 PM 27913 in reply to 27912

    Re: How does buying power work?

    Reply Quote
    Also, speaking of margin maintenance requirement, what is your current "Maint. Excess"?   If your "Maint. Excess" is in negative, this would also explain why you get the the Margin Call.
  •  04-27-2008, 7:29 PM 27917 in reply to 27886

    Re: How does buying power work?

    Reply Quote
    I ran into the exact problem on Friday you did, but it has nothing to do with how much margin you used.  Most likley you are not able to use margin on the stock.  The problem I ran into was the stock I bought on magin was a recent IPO (IPI) and you can not use margin for 30 days on an IPO.
  •  04-27-2008, 7:34 PM 27918 in reply to 27917

    Re: How does buying power work?

    Reply Quote
    The only stocks I have are POT, AAPL, and V , I did buy some IPI on friday morning but I sold it Friday evening. I have over $2000.00 in Maint excess
  •  04-27-2008, 10:32 PM 27926 in reply to 27918

    Re: How does buying power work?

    Reply Quote
    abrentpledger:
    The only stocks I have are POT, AAPL, and V , I did buy some IPI on friday morning but I sold it Friday evening. I have over $2000.00 in Maint excess


    Since none of your stocks require special margin maintenance and your Maint Excess is fine, I can't see why you get a margin call.    I think you should call Zecco first thing tomorrow morning.  Please keep me update.  I'm curious on what Zecco have to say about this.  Thanks!
  •  05-16-2008, 8:35 PM 29250 in reply to 27886

    Re: How does buying power work?

    Reply Quote

    Unless I am  mistaken, you had an initial equity issue. Its results equate to insufficient ONBP, but maybe for the sake of explanation, you could look at it this way.

    You had 5500 in equitable securities, so with your marginal buying power equaling essentialy double your equity, you had 5400ish Buying Power. When you purchased more stocks with that money, you essentialy spent zero of your own money on the trade. ONBP works on the principle that at the end of the day, you can use roughly double "your" money. So essentialy if you had liquidated your prior securities and then repurchased them with the new ones. (Assuming same prices of course) You should have technicaly been ok with your holdings. (As long as none of them dropped below the minimum equity maintanence level) Hopefuly this answers your question, or hopefuly someone will correct me if I'm butchering the explanation.

     

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