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Ok Dwyer, here it is in a nutshell:
CALCULATING MAINTENANCE REQUIREMENTS
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On the day that you buy or sell a stock, you must have 50% of the market value of that stock as free cash. So if you buy $100,000 worth of stock, you must have at least $50,000 in your account.
This is an INITIAL Purchase/Sale requirement ONLY. Thereafter you are required to only have 25% of the market value of the stock as free cash for Long Positions, or 30% for Short Positions.
So, while you needed 50% of the stock's market value on the day you initially purchased/sold it, every day thereafter, you only need 25% or 30% of the market value to hold it in your account.
CALCULATING YOUR BUYING POWER
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Next, to calculate your Buying Power, you must remember the following formulas:
EQUITY - MAINTENANCE REQUIREMENT = MAINTENANCE EXCESS
MAINTENANCE EXCESS x 2 = BUYING POWER
***Remember, Maintenance Requirements are 25% of the Market
Value for stocks that you hold overnight LONG, and 30% for
SHORTS that you hold overnight.
EXAMPLES
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DAY 1: You have 50K in your account and no positions.
Buying Power = $100,000
formula --->[EQUITY ($50,000) - MAINTENANCE ($0) x 2 = $100,000]
You short 1000 MSFT at $100 (You have 50% of the market value [$50K] so you are fine).
DAY 2: You have $50K and a $100K position.
Buying Power = $40,000
formula --->[EQUITY ($50,000) - MAINTENANCE ($30,000) x 2 = $40,000]
You short 400 MSFT at 100.
DAY 3: You have $50K and a $140K position
Buying Power = $16,000
formula --->[EQUITY ($50,000) - MAINTENANCE ($42,000) x 2 = $16,000]
You short 160 MSFT at 100
DAY 4: You have 50K and a 156K position
Buying Power = $6,400
formula --->[EQUITY ($50,000) - MAINTENANCE ($46,800) x 2 = $6,400]
It will keep going like that until you own $166,666.66 worth of MSFT (30% of $166,666.66 = $50,000) .
Going long works exactly the same way, except you just use 25% instead of 30% to calculate the Maintenance Requirement.
I hope this helps...let me know if you still don't understand.... |
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