scneed,
I've read the other replies to your question, and I don't feel either of them is completely accurate. I'm not going to address those point by point, but here is my understanding of the CURRENT rules.
Reg T governs the amount you can borrow from your broker for positions held in your account each night. The first night you hold a stock, you must have at least 50% of that in your account. For a short you must have 50% in addition to the proceeds of the sale. This is the initial margin requirement. Simplest case.. If you buy a stock worth $10,000, your account value must be $5,000.
Reg T allows for the possibility that after you buy a stock, it might go down. If for example that $10,000 stock slipped to $9,000 your account value would drop to $4,000, less than 50%. You can still keep the position, as long as your account value remains above the maintenance margin requirement, typically 25% to 30% of the value of securities held. For longs 25% is as low as you can go, but your broker may require more. I believe shorts require at least 30%
For daytrading, you have buying power that is currently twice the value of your account in excess of the maintenance margin requirement, called maintenance excess. If you are flat every night, that's twice your account value. If you hold overnight, it's half your account value minus 25-30% of the open positions. So if you held a $10,000 stock in a $5,000 account, your maintenance excess would be $5,000-$2,500=$2,500 and your daytrading buying power would be $5,000.
Contrary to other inputs, whether you make money or lose it daytrading, you are limited to how much stock you can own at any time during the day. If your buying power is $5,000, and you spend $6,000 for one trade (or combination of trades) they you have exceeded your limit and you will receive a 2520 margin call (not Reg T).
For stocks you hold overnight, you would think that if you sold all of them in the morning you would restore your buying power to twice the account value. Such is not the case. Any sale you make before buying during the day is treated as a short sale for margin purposes. If you use the cash received from that sale to purchase other securities you can easily generate a margin call. If you don't buy that stock you sold again, you might escape the call if the broker somehow lets that slip by, but if you buy it back there is no way to treat the sale as other than a short sale for daytrading. If you sell and don't buy back, your Reg T buying power is restored, so you can buy other securities.
The proposed changes to 2520 include a change in how overnights are handled, and raising daytrading buying power to four times maintenance excess.
Dan
ED: Well the rest of you were busy while I was writing. OZ did a better job than I did presenting the buy back the overnight situation
Message 14320170 |
