augieboo: I will try to answer your questions the best I can. These answers assume you have a margin account.
First I should mention since I forgot, the previous post was based on standards for E*Trade.
With regards to NENG, I guess you could see tiered margin call selling given that some brokers have differing margin price thresholds. Keep in mind we are talking about generalities as brokerage houses can decide to make any stock non margin-able or not based on their risk assessment. For instance E*Trade’s current margin price threshold is 3 bucks, Schwab is also at 3 bucks, AmeriTrade is 5 bucks, but if you have a plus account it is 2 bucks, you get the point.
#1: That varies depending on the brokerage as well. For instance normal margin balance maintenances for: (Keep in mind you have to have “excess margin maintenance” and that can be cash or a combination of cash and or unrealized gains in margin-able equity positions. Settlements in progress don’t count.)
E*Trade is 50%, which means (keeping it simple) 100K of excess margin maintenance can buy up to 200K of stock with margin. However, you wouldn’t ever want to be 100% margined, IMO.
Scwab is 30%, which means 100K can buy 333K.
Ameritrade is 50% for regular accounts and 30% for plus accounts, see figures above.
Another thing to keep in mind is that the above is using the brokerage’s “normal” percentages. Each margin-able equity is subject to evaluation and can have the margin maintenance percentage increased depending on a number of factors which make the stock more of a risk. And, the margin maintenance requirement can be changed without prior notice.
#2: Every time you go long a stock, margin is used to buy the shares. The same is the case if you go short. The percentage of your cash or excess margin maintenance used is determined by the percentages set for that particular equity. That is why it is always a good idea to check on the margin maintenance requirement for each equity before you go long or short.
The 4x margin is availabe to accounts that have been tagged as “pattern day trader” accounts. That means during the trading day you can be margined up to 4 times the excess margin maintenance in your account at the close of the previous trading day. If your excess margin maintenance was say 50K at the end of the previous trading day, you will be able to buy 200K worth of stock, but you must liquidate to bring your margin back in line within the normal margin requirements before the close or you will receive a margin call for the excess. That margin call must be paid for in cash, liquidating your position the next day will not satisfy the call. IMO, the extra margin offered pattern day trader accounts only entices traders to risk more than they should. I never use it nor do I ever go to the limit using normal margin percentages. That way I never have to worry about having to liquidate before the close if I do not want to.
#3: To make it simple assume you have a new account, the initial excess margin maintenance required for your first position is going to be composed completely from your cash. If the margin maintenance for ABC is 50% then if you buy $5k in stock $2500 of it will be from your cash (even if you have $100K in cash) and $2500 will be from margin (money loaned to you buy your broker.) You pay interest on this money if you hold a position over night, but for all practical purposes you pay zero if you go flat before the close every day. That repeats for each equity you go long or go short and the margin maintenance requirement may very per equity and whether you are going short or long that equity as sometimes the margin maintenance requirement is different for the same equity depending on whether you are going long or short.
#4: Since your hypothetical gal is a day trader who goes flat before the close each trading day we have to assume her account is tagged as a “pattern day trading account. If you go flat at the end of each trading day, then hypothetically you could have all your cash to trade with the next trading day. However, not all trades settle that quickly. In some cases you may have to wait as long as three days. However, you can trade using margin the next day up to 4X based on the cash in your account at the close of the previous day. What that means is the cash in your account the previous trading day times 4 is how much you have to trade with the next trading day using pattern day trader margin and margined to the max. Each position you take 25% percent will be from your excess margin maintenance and 75% will be margin.
If at the close of the previous trading day you chose to remain in a position that maxes out your excess margin maintenance using normal margin maintenance requirements (you can’t hold over night using the 4X day trader margin) leaving you with zero excess margin maintenance in your account at the close, the next trading day you would multiple zero times 4X margin to find out how much you have to trade with. Of course zero time 4 equals zero. I hope you get the point.
Of course you can still close existing positions, but you cannot use any of the cash raised to trade until the next trading day.
I hope that makes it clearer.
Regards,
LG
PS: Non-margin-able stocks can only be purchased using your available cash. And if you have a "pattern day trader" account the value of those non margin-able equities will not count towards the minimum required $25K balance in your account.
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