Wayne,
I think you've got it as far as the initial calculation of maintenance excess and the 2x vs. 4x comparison is concerned, but I think you gave yourself $5,000 of somebody else's money in the subsequent discussion. You are correct that your equity of $15,000 gives you $5,000 excess which can be used to purchase $20,000 in additional stock, but that does not increase your equity. You still have only $15,000.
Another way of looking at the proposed rule is to say that during any day you may own 4x your account equity, or in your example 4x$15,000 = $60,000 of which $40,000 is used up by the AMZN you held overnight. If you spend the extra $20,000 it is all your broker's money, none of your own. If you say you have $5,000 equity in the new stock, then your equity in AMZN has dropped to the required maintenance margin of $10,000, for a total of $15,000. You never have $20,000 equity
If you hold the new $20,000 stock that night, as well as the $40,000 in AMZN, then you are saying that you must have maintenance margin of 25% for the $40,000 AMZN plus Reg T (50%) first night margin for the $20,000 for a total of $20,000, so your Reg T margin call would be $5,000. I agree with the calculation. I wonder though if this is really the case. As long as you have maintenance margin in your account your broker is not going to force you to liquidate, but are they really going to extend you the additional credit to purchase even more stock? If they did, and you sent the $5,000, you would then have $60,000 in stock with $20,000 equity or just 33%, down from the 37_1/2% ($15,000/$40,000) you had to start the day. If they allowed you to do this indefinitely, you could gradually spend your way down to the minimum 25% equity. I would guess that a prudent broker would not allow you spend more of their money when your equity is slipping toward the maintenance minimum.
There is one final point that should be mentioned If you started the day with $15,000 equity in your account, as in your example, you would not be allowed to daytrade because you are below the $25,000 minimum. You could buy the additional $20,000 in stock, and send $5,000 to meet the Reg T margin call, but if you want to daytrade you have to send $10,000 to get your equity back up to $25,000.
A few questions:
Did you happen to find the full text of rule 2520, or were you just reading the proposal to change parts of it?
Have you ever seen anything that explicitly addresses the issue of wether selling a stock held overnight increases your daytrading buying power? None of the examples in 98-102 cover this case, and your example doesn't either. What would happen in your example if you sold AMZN? We touched on this in an earlier exchange, but I'm looking for something from the NYSE or NASD that explicitly addresses this issue.
What do typical brokers do with regard to adding overnight positions when you have less than 50% equity in your account?
Dan |
