Dominick
Example 2 Current Market Value drops to $70,000
$70,000 CMV (100%)
-$40,000 Loan (57%)
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= $30,000 Equity (43%)
- $35,000 Reg T (50% of CMV)account status change only
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= $(5,000) Excess Equity ACCOUNT RESTRICED further
purchases require 50% initial deposit.
I think this addresses a question I raised earlier in
Message 12857075
about the use of "maintenance excess" to add overnight positions when an account is below 50% equity. Am I correct to interpret your example to mean that once my equity falls below 50% of the value of stock held in the account that I must deposit 50% of the value of any new position?? If that is the case, it would prevent me from spending my way down to a maintenance call, which was the concern I had raised before. Instead, every additional purchase would make the account a little bit healthier by increasing my overall equity percentage in the account.
From my old message:
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.
After reading your example, I think the broker would require a deposit of $10,000 for the new $20,000 position, which would raise the account equity percentage to $25,000/$60,000 or 41.7% instead of letting it slip lower. This seems reasonable. Do I have this right?
Thanks in advance.
Dan |
