LG ON MARGIN & MARGIN CALLS, #1
Posted by: LG
In reply to: augieboo who wrote msg# 11447 Date: 12/16/2003 4:22:44 PM
Post # of 11458
augie: Given some of the talk about NENG and whether margin selling is going to effect it I thought I add a couple of thoughts.
Some brokerages have lowered their price threshold for margin-able stocks from 5 to 3 bucks now, due to the declines in so many NASDAQ issues. The norm for margin-able stocks is a 50% margin maintenance requirement. Of course the margin maintenance requirement can vary per equity depending on your brokerage and its analysis of the equity. Some equities that have been deemed risky or volatile will have higher margin maintenance requirements say 70% and higher.
Most brokerages will evaluate each margin-able stock once its drops below their price threshold to be margin-able. If the stock has been doing a slow grind down, it will likely be reviewed the first day it falls below. Stocks that tumble sharply and fall beneath the margin price threshold are often given up to a five-day period to see if they are going to rebound. However, it depends on each stock, how far it fell below the brokerage's margin price threshold, how it fell and why. A stock in dire straights could be subject to an immediate margin call. Simply put, it is at the discretion of the brokerage. So you never know for sure.
Usually when a margin call is made, you are given three days to pony up more cash or reduce holdings to satisfy the call, but those calls can be deemed immediate. Margin calls with exceptions to liquidating assets to satisfy the call or the ones for falling below the pattern day trader minimum 25K balance or failing to bail out of pattern day trader 4X margin before the close. As I understand the pattern day trader regulations, you cannot satisfy either of these margin calls by liquidating existing positions, you must satisfy those calls by sending in cash.
And remember, non margin-able securities do not count toward the 25K minimum balance for pattern day trader accounts. So if you decide to buy a boatload of non margin-able stocks one day, keep in mind how those purchases are going to affect your minimum balance.
You may want to contact your brokers to find out what their margin price thresholds are now. You may be surprised to find that its been reduced from 5 bucks to 3. Of course even if a stock is margin-able, you always want to check to see what the margin maintenance requirements are for that particular stock.
You can't go short unless you have a margin account and if you do have a margin account, you use margin with every trade.
If you make four day trades a week, say only one each day for four out of five days, your account is supposed to be tagged as a pattern day trader account. Fortunately a new reg allows you to reduce trading for a week or so to get the tag lifted (depending on the brokerage), but it will go right back on if you start day trading again.
Well that's how I understand it anyway...gg
Regards,
LG
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