Dear- As a newbie in NYSE, I am practicing trading system, with a recent open IB account. Here is a situation. Suppose I have a cash of $10K, AXP (as much as $6K) is bought without any problem, since it is all cash(actually will be paid in settlement day). Now problem starts here. If I buy CAT (as much as $6K), obviously 2K is needed to complete CASH buy, for my personal budget of $10K. 1) Actually I did NOT specified CASH or LOAN at all at the time of BUY order. 2) In this case, automatically a loan of 2K is coming to me in the settlement day? 3) What happen if I sell AXP or CAT today? 4) How about if I sell those tomorrow? 5) If any kind of loan that came from IB cash, what is the interest rate that I pay? I know these are VERY SIMPLE question that everyone faces at the beginning of trading. Appreciated if anyone gives me explanation (show me explaining link). -Jay
Well, your question is a little unclear. Usually you would have either a cash or a margin account at your broker. You set this up at the time you open the account or you can go back later and change to a margin account if you meet the broker's requirements. If you have a cash account, you can buy up to however much money you have in the account. So you buy AXP for 6K and all you can then do is buy 2K worth or CAT. If you sell AXP, you would receive the funds at settlement, which is (normally) 3 business days after the trade (they call it T+3). Only then can you buy more than 2K of CAT. If you have a margin account, you can borrow against the securities held in the account. The maximum amount the broker can lend is set by the Feds (Reg T), but it has been 50% for a long time now. So assuming the AXP is still worth 10K, you can borrow $5K against it. However, there is also a minimum amount that you have to put up. It used to be $2K, but I don't know what it is now. I don't know what IB's interest rate is. They will be glad to tell you. I think this is basically correct, but I trade futures and am not current on margin, so someone else may know better. If you trade with IB, you might want to check out what IB has to say about it at https://www.interactivebrokers.com/en/?f=margin
easier to just go to account window in paper account and check margin requirement and available for trading. You'll see how it goes, 50% margin for stocks.