Margin explanation

Discussion in 'Trading' started by mktman, Sep 21, 2001.

  1. mktman


    I am in the need of understanding margin due to new rules to go into effect end of next week.

    Am I correct in saying that margin and most of its requirements only become a factor when you borrow money from the broker?

    For example, if I initially fund an account with $10,000.
    Then my buying power cash wise is 10K. If my margin is 2:1 then total buying power is doubled to 20K.
    If I stay within my cash buying power of 10K then I
    will never have to worry about margin and its potential complications. In a sense use margin account as a cash account.

    Is this correct?

    Would appreciate any help.
    Seems to be a way around new rules if your use to cash account.

  2. Jens


    if you only use the cash amount in your account, you are going to have no problems with margin calls etc. (except when a short position goes sharply against you). You are however still effected by the new daytrading rules, since your account will be a margin account. You need a margin account in order to daytrade, because in a cash account funds are not immediately available after selling a position and because margin is necessary in order to go short.
  3. mktman


    Jens thanks for your help.
    Appreciate the time.

  4. I'm a bit confused over one aspect of this?: Assume I use only cash, but do round-trip trades several times a week, will my account be marked as "daytrading" and I will be unable to use margin at all until I have $25k? Would I still be able to short? It sounds as if I would have to swing trade from now on if I ever want to use short or margin even occasionally if I read the rules correctly. Do they look at all-cash activity when determining whether your account is marked or not? Right now I am stuck in a long position (don't ask) so it doesn't matter yet, but I need to determine my new timeframe strategies.
  5. mktman


    Researched this till blue in the face.

    Way to get around cash account problem is to switch to margin account and only use cash balance for trading.
    Never tap margin, thus, wont have to worry about margin stuff.
    However, this does require discipline and being aware of what is available cash wise.
    Since in margin account can daytrade suing cash.
    However, new rules still apply.

    1. Need 2k to open margin account.
    2. Be aware of 4 in 5 rule then pattern daytrader
    < 25K further restrictions