The online broker warned special margin requirements apply. What is this?

Question

I tried to buy some ETF shares that shorted the S&P500. The online broker wanred about margin requirements. What is this??

Answer 1

As Dave said, as long as you buy your shares in whole, the margin requirements would have no impact upon your account. It only affects you if you use margin to buy the ETFs.

If you use margin to buy the ETF and the S&P continued to go up and up and up, the value of your ETF would continue to decline and you'd get a margin call where the broker would want more money deposited, or would sell some of your shares to mitigate your risk.

Hope that helps!

Answer 2

If you're paying for the shares in full, you don't have to worry about that.

When you borrow money from the broker to buy stocks, that's called buying on "margin". There are government and individual broker requirements for what percentage of the value of a stock can be borrowed money. I think it's generally 50% for most stocks, but certain stocks (probably the ones that are more volatile or riskier) have different requirements that are stricter. That's probably the case with the ETF you're talking about and is what that warning was alerting you about.

Again, if you just pay for the shares in full (which I recommend), that has no effect on you.

Answer 3

In trading shares some shares which are highly volatile will have margin money you to pay. This is a protection for the broker if you default in payments or unable to take delivery of the shares.

Answer 4

Anytime you hold a short position, your position value can drop to higher than your total investment. For example, if you're short IBM at $50, when it hits $100 you've lost everything. If you keep holding while IBM rises, you lose more than you've invested.

Answer 5

Don't you think it would be best to call your broker and ask?