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Margin Account FAQ's
A margin account allows you to use your securities
as collateral for the purchase of more securities or even
for a personal loan (using personal checks). You can use a
marginal account to increase earning potential in a bull market
or as a short term loan in a bear market. Although you do
pay margin interest for this privilege, it is lower than many
major credit cards.
Frequently Asked Questions on Margin
Why have a Margin Account?
Borrowing on margin allows you to extend your WallStreet*E
account, using your securities as collateral for this loan.
With this loan you can:
- Purchase Additional Securities: This is the most common
use of a margin account.
- Increase Profit Potential: With a margin account you
are entitled to all the dividends paid even if the stock
is on margin.\
What is the difference between a margin and cash account?
With a margin account, you do not need one hundred percent
of the purchase price deposited in your account in order to
purchase a stock. Stock that you already own can be used a
collateral to purchase additional stock or even for a personal
loan. In a cash account you can only purchase securities with
cash from your account.
What is an example of a margin account?
For example lets say you bought one hundred shares of xyz
stock for $5,000 in a cash account. In a margin account you
could buy another $5,000 of xyz stock giving you a grand total
of $10,000 of xyx stock ($5,000 on margin) even if you only
have $5,000 in your account.
Suppose that you had 5,000 to invest and picked a stock selling
for $50 that you thought was going up. Under a 50% margin
rule you can buy 200 shares of the stock as opposed to just
100 shared, with your $5,000 *. If the stock goes up five
points, you make $1,000 instead of $500. If the stock goes
down you would receive a margin call.
* This does not include any taxes, commissions, or margin
interest which may be due.
What will it cost me?
Margin Lending Rates vary based on the current Federal Reserve
Broker Call Rate. Rates also vary depending on the size and
the volume of the account. Please consult us for current rates
and further details.
E-mail:info@wallstreete.com
Toll Free: 1-888-WALL-STE (1-888-925-5783)
Telephone: (888)-925-5783 or (305)-266-9120
Fax: (305)661-7402
Is the risk worth it?
As with any borrowing there is always risk. If the securities
which are held as collateral fall in price below certain percentage
you will receive a margin call. This means you must make a
deposit to increase your collateral. Always use conservative
estimates when investing in margin securities and always take
into account possible market fluctuations.
The interest rate is often comparable to, if not lower than,
the prime interest rate -- the rate offered by banks to their
best business customers. Gains in your securities can pay
this interest.
| Margin
Requirements For Margin Approved Securities |
Type
Of Security |
Initial
Requirement |
Maintenence
Requirement |
| Margin
Approved Stocks |
| Priced above $4 |
50% x M.V. (Market Value) |
35% x M.V. |
| Priced at $3.99 or below |
100% x M.V. |
100% x M.V. |
| Short Stocks |
| Priced at $5 or over |
50% x M.V. |
Greater of $5 per
share or 35% x M.V. |
| Priced below $5 |
Cannot be sold short |
$5 per share |
| Shorts vs. box |
n/a |
5% x M.V. |
| Investment
Grade Margin Approved Bonds (Not marginable if price is
less then $50, except Governments) |
| Convertibles |
50% x M.V. |
35% x M.V. |
Corporates /
Municipals |
Greater of 25% x M.V. or 20% x face value
|
Same as initial |
| U.S. Governments |
Greater of 10% x M.V. or 3% x face |
Same as initial |
| Options |
| Covered Options |
The sale of a call cannot be
in the cash account unless the underlying security is
long in the account prior to the sale |
| Naked Equity Options |
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| Puts |
The greater of 25% of the underlying security,
less any out of the money, plus the premium or 15% of
the strike price plus the premium |
Same as initial |
| Calls |
The greater of 25% of the underlying security,
less any out of the money, plus the premium or, 15% of
the underlying security price plus the premium |
Same as initial |
| Spreads |
100% of debit an minimum equity of $2000 |
Same as initial |
Bull Spread (Debit Spread)
(Must be done in margin account) |
Lesser of uncovered requirement as above,
or difference in strike price |
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| Bear Spread (Credit Spread) |
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| European style calendar spreads are not
permitted |
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| Naked index options |
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| Puts |
The greater of 25% of the underlying index, less any
out of the money, plus the premium or 15% of the underlying
strike, plus the premium |
Same as initial |
| Calls |
The greater of 25% of the underlying index, less any
out of the money, plus the premium or 15% of the underlying
index, plus the premium |
Same as initial |
For more information on Options Trading and Risk, please
see the Characteristics and Risks of Standardized Options
from The Options Clearing Corporation |
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