Margin Tutorial (Revision 2. Correction: changed overnight buying
power from $5,000 to $10,000 about 1/2 way down)
You begin the day all cash. (You can check on the total value of the
equity in your account at any time by taking the sum of the Beginning
Excess Equity and the MMR. Try this below; it always works.)
Your Acctinfo screen looks like this:
Beginning Excess Equity 10,000 10,000
Less: Reg T Requirement - -
Less: MMR - -
__________________ ______________
= 50% Intraday = 50% Overnight
Buying Power Buying Power
Intraday Credit 0
Total Buying Power = 20,000 20,000
(This last line isn't displayed. You'll have to figure it out yourself.)
-------------------------------------------------------------
You buy $20,000 of xyz and hold overnight. Next day your screen
looks like this (assuming no price change in the stock and not
taking into account commissions):
Beginning Excess Equity 5,000 5,000
Less: Reg T Requirement - -
Less: MMR - - 5,000
__________________ ______________
= 50% Intraday = 50% Overnight
Buying Power Buying Power
Intraday Credit 0
Total Buying Power = 10,000 0
------------------------------------------------------------
You are margined to the limit for overnights but can still
daytrade up to $10,000. You do this until the end of the day.
At one point you have bought $10,000 of abc as a daytrade.
You still own the overnight xyz. Your screen looks like this:
Beginning Excess Equity 5,000 5,000
Less: Reg T Requirement - - 5,000
Less: MMR - 5,000 - 5,000
__________________ ______________
= 50% Intraday = 50% Overnight
Buying Power Buying Power
Intraday Credit 0
Total Buying Power = 0 -10,000
-------------------------------------------------------------
If you don't close out your daytrade, you'll have to fork up
10 grand the next day to cover the Reg T margin call.
But you want to keep your $10,000 of abc. You decide to dump your
$20,000 of xyz instead and raise your position in abc to $20,000.
(You couldn't buy $20,000 straight off, because your daytrading
limit only allowed $10,000.)
You sell all of your xyz at the price you bought it.
Now your Acctinfo screen looks like:
Beginning Excess Equity 5,000 5,000
Less: Reg T Requirement - - 5,000
Less: MMR - 5,000 - 5,000
__________________ ______________
= 50% Intraday = 50% Overnight
Buying Power Buying Power
Intraday Credit 5,000
Total Buying Power = 10,000 10,000 (Corrected)
--------------------------------------------------------------
The last line is calculated by multiplying your intraday credit
by 2 and adding it to the last column and just adding without
multiplying to the first column.
You now buy the other $10,000 of abc. And your screen looks like:
Beginning Excess Equity 5,000 5,000
Less: Reg T Requirement - - 10,000
Less: MMR - 10,000 - 5,000
__________________ ______________
= 50% Intraday = 50% Overnight
Buying Power Buying Power
Intraday Credit 5,000
Total Buying Power = 0 0
--------------------------------------------------------------
You can switch a fully margined position to another fully margined
position in a different stock from one day to the next and day trade
using the credit all day long as long as the new overnight position
is in a different stock. If you buy the same stock at the end of the
day to hold overnight the SEC considers that to be the same as never
selling it in the first place. That's fine as long as you don't
use the intraday credit to daytrade. If you do use it, the SEC forces
a margin call for the amount of credit you used.
Note also that the combined margin (overnight and daytrading) is 200%
of your equity (your original $10,000 used to buy $20,000 worth of
stock plus $10,000 for daytrading).
The next morning, your screen looks the same as the first morning with xyz:
Beginning Excess Equity 5,000 5,000
Less: Reg T Requirement - -
Less: MMR - - 5,000
__________________ ______________
= 50% Intraday = 50% Overnight
Buying Power Buying Power
Intraday Credit 0
Total Buying Power = 10,000 0
------------------------------------------------------------
Hope that this example helps to make things a bit clearer. If
not...oh, well... on to other things.
-Sword
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