I've always traded in a cash account. Now that I've become more confident in my trading style I'd like to bring in some modest leverage... Say I have a margin account with $25,000 at IB. This gives me 2x buying power. If I buy $30,000 worth of stock and hold the positions for a couple months... where does the $$$ come to pay monthly fees + margin interest? Basically I'm wondering once my 25k is in use and I'm dipping into margin to trade where does the money come for fees, interest and commissions? Thanks and please let me know if you want me to clarify any part of my question.
Since the 50% margin requirement is an an initial requirement and your maintenance margin is less than 50% they simply lend you a bit more money each month. Before you think of your leverage as skyrocketing do the calculation. In these times of low interest the leverage is not shooting up quickly. If you like the trades(s) do 'em.
Thanks for your response Swan! Just to clarify if 100% of my cash is in use and some of my margin... commissions, fees and interest come out of unused margin?
With 30K in position value and 25K in cash you used up all you 25K and borrowed 5K on margin. You cash value would be negative 5K. All you commission, fees etc will be added to your cash value as debit, meaning that you keep borrowing more from a broker in addition to the initial 5K.
They like lending you money particularly since they may be lending you some of mine! You are too conservative to run into a magin problem ... just don't lose it in the trade.
yes. don't worry about them...they can auto liquidate some of your positions,if there is not enough money to cover those expenses. plus, from my experience -they not going to let you use 100% of the margin(in case, if you planning to do that)..
In the above scenario, you guys said you'd be paying interest on only 5k borrowed. (the amount over 25k) Are you sure this is correct in a margin account? I'm not sure of this but in a margin account are you not always borrowing 50%. So if you have 25k dollars and your stock positions are 25k you are borrowing 12.5k and paying interest on that 12.5l and the rest is cash waiting to be used up. Yes you may be earning interest in the cash but your are probably paying out more in interest. Anyone care to clarify?