Can a broker's margin resources be exhausted?

Discussion in 'Trading' started by Bickz, Nov 28, 2007.

  1. Bickz


    this is a question for those who know the inner workings of brokerages and margin accounts.

    when a broker offers a margin account, do they actually have a pool of money from which the client draws from? and if so, can this pool potentially be exhausted at any time, denying the client leverage?

    if there is indeed a pool of money that does decrease with use, then it seems to me that brokers who offer 100:1 margin rates could potentially be in danger of exhausting their available funds, thereby having to deny clients from borrowing money.

    is this really how a margin account works, or does it work differently?

  2. No, the brokerage does not 'back' the margin. They just eat a % interest spread to "loan" you money that they never had.

  3. Bickz


    thanks Tracy! i appreciate it.