MDA - Market Direction Analysis

[ljk]

I can answer some of that, Little White Fluffball, but you needn't add my response to your junkpile. :)

1. At my main firm right now, if you have $100,000 in cash, you have $333,000 margin. If you have $100,000 in marginable stocks you have $233,000 in margin, spending power. That is counted as if you were dealing with 30% margin, which is their most common and lowest equity for stocks, but if you use it to buy stocks with higher equity your buying power diminishes faster.

2. All trades in a margin account use margin money for trading, but stocks that require 100% equity use 100% of your margin money for the trade. That would include non-marginable stocks like those under $5, options, and stocks that the brokerage has designated as being SO volatile as requiring 100% margin. They also designate some as 75% and some as 50%, while the most are 30% right now.. in my main firm. Each firm has somewhat different deals on marginability. MOST firms still require $5 as marginability but not all, as LG has keenly stated.

2i and ii. All Day Traders in the US, by law, can spend at least FOUR TIMES their actual margin money, (or even more than that -- I forget the maximum), if they spend it sequentially during the trading day! So if I buy and sell NENG fifty times during the trading day, I pay no margin interest. Those are free trades in terms of no penalties, and no margin interest, just the usual commissions.

3. Margin maintenance requirements refer to the volatility of the stock and each firm determines that for themselves. Very volatile stocks require more equity. Like you have to put in more than the 30% to buy it. My China Portals all have 50% rather than 30% equity. They are more volatile stocks. A firm can change the maintenance requirement for a stock without notifying you but my firm kindly informed me four days in advance before changing all my China Portals from 30% to 50%. They never did that before -- warned me. But they could have put me into a margin call with that big a change in my portfolio. A backhanded advantage of higher margin requirements is that when you sell the things you end up with much more cash in your account -- greater buying power than if you sold one with lower equity.

You do get the full profit of your trades, whether you're on margin or not, but you also get the full losses of your trades, whether you're on margin or not.

4. If she actually had 400K (she has 333K in my firm) she could trade 1.6 million buckeroos during a trading day (or maybe more) as long as she closed the trades. The amount you can trade is 4 times something MORE than the buying power, but frankly, who wants to ride that close to the edge? There is a law that covers how much you can trade, by the way. That isn't dependent on individual firms.

5. If you are using margin overnight you're being charged interest. It's a LOAN from the brokerage firm. Each firm charges you differently. Mine is kind to me and charges me only 2.5%. Most firms charge a lot more. You have to make more than that to make holding stocks on margin pay. If you really just daytrade the money you're paying no interest at all!

Hope this helps.

Woof!
Linda