Schwab is trying to protect themselves (and you) from the volatility of certain stocks. If you have 35% equity in a stock and it falls 50%, they have to sell your car and house to get their money back. This isn't something they care to do. Therefore they try to make sure that all accounts have sufficient equity to be protected against the daily moves of the securities that are in it.
Yes, to a certain extent this reduces certain stocks temporarily, but it also reduces the volatility of those stocks in the long run by preventing margin calls.
I suppose you would prefer to own AOL with 35% margin. Then if AOL took a 15% price hit in one day, you'd get a margin call, and if you didn't meet it (even if it was because you were out of town), they would sell it the next day, when due to margin calls it would be down another 15-20%, leaving you with nothing. And if it was down another 25% the next day when they sold it, they would have to take your car.
Can't happen you say? It has happened to people many times in the past, and will happen again. In fact, whole brokerage firms have been bankrupted by allowing traders to own excessively margined positions in volatile stocks; when a fall in the stocks required the brokerage firm to do a forced liquidation into a falling markets the traders were all bankrupted and couldn't cover their margin position.
Schwab, by requiring more margin on volatile stocks is doing you a favor, and you don't even know it. I for one am glad they have these policies because it means that they will probably survive the next crash, though if you find a brokerage firm willing to give you enough rope to hang yourself, you may not.
Good luck,
Carl |
