So I opened margin account with an online broker. My available funds are twice my cash in the account. Today I bought some shares without going over my available cash. While my funds went down cash didn't.
Is this normal?
Considering that I am only spending within my means, will I get margin calls if the shares go down in price? Will the broker liquidate my shares if it goes to zero?
2007-03-15 09:35:34 · 4 answers · asked by Paper M 1 in Business & Finance ➔ Investing
When you buy stock the actual transaction takes place on the settlement date -- which is the third business day after the trade (known as T+3). You will not have to deliver your money until the stock is delivered to you. If you bought it today, you should get delivery on Tuesday. Funds were lowered to reflect the fact that cash is pledged to this trade. Cash will be taken from your account on that day.
2007-03-15 09:51:42 · answer #1 · answered by Ranto 7 · 0⤊ 0⤋
Taranto already gave you a good explanation of why the cash in you account did not go down yet.
jennifer was being a smart-alec about contacting your broker before you get a margin call, but she is right that you should understand margin accounts.
Having a margin account means that you can use the assets (cash or stock) in your account as collateral. If you limit your trading to stocks, that means you would be allowed to buy more stock than you could pay for using just the cash in your account.
For example, assume you open a margin account with $25,000 cash. You can buy up to $25,000 worth of stock with those funds without any risk whatsoever of a margin call since all the money you are risking is your own. However, if you buy $40,000 worth of stock, your broker would lend you $15,000 to put with your $25,000 to get the cash to pay for the stock. Because the brokerage's money is now at risk, as well as your own money, the brokerage will monitor the account to make sure the amount of the loan doe not exceed the amount of collateral you have available. If it does, you will get a margin call.
Having a margin account does not mean that you have to, or even should, borrow money from your broker to buy more stock. Your broker will charge you interest on the loan if you do, which makes making a profit on your stock more difficult. Until you have some years experience, I suggest you limit your purchases to the amount of cash you have available. I have had a margin account for a few decades without ever borrowing money to buy a stock.
Your margin balance will also be used if you get into some other types of trades where your broker has some potential liability, such as selling stock short.
2007-03-15 10:30:05 · answer #2 · answered by zman492 7 · 1⤊ 0⤋
Wow! And you invested money not knowing any of this? Seriously - you need to contact your broker ASAP before you get a margin call that will knock you on your A**.
2007-03-15 09:43:18 · answer #3 · answered by jennifer74781 4 · 0⤊ 0⤋
You got to be kidding me!
I strongly suggest you to visit the Help section of your broker before you are arrested for breaking the SEC Laws.
No wonder millions lose all their life savings in the stock market.
2007-03-16 20:17:52 · answer #4 · answered by Anonymous · 0⤊ 2⤋