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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Matthew L. Jones who wrote (23606)	8/23/1999 12:25:00 PM
From: James F. Hopkins	Read Replies (1) \| Respond to of 99985

Matt; It's a lot to try to explain, and not all brokers handle margin the same or have the same margin rate. ( but it's kinda close) The point I think we are talking about is it's really up to the broker which stocks can be on margin. ( Where you are borrowing money against assets to buy shares ) This is overly simple but maybe it shows some of the serious risk , lets say you pay cash for AMZN 50K worth , and cash for GE 50K worth so you are fully invested at 100K , MRK looks good to you the market is moving up , so you buy 100K of MRK on margin ..using AMZN and GE as collateral. Then soon after you buy MRK; AMZN is dropped as being margiable, well you didn't buy her on margin so your not worried, but the rub is all of a sudden she does not qualify as an asset you can borrow on , your marginable assets are no longer 200k but 150k and you owe them 1OOk , and they now want some money or you have to sell something . ------------------------ For some reason this always seems to happen just after the market turns down. ---------------------- My margin rate is about 7% but I'm never on it very long, IF I buy and sell on margin the same day ( daytrade on it ) it cost me nothing as settlement day is the same. If I exceed my buying power they will not let me use margin for 90 days. My buying power ( amount I can buy on margin ) depends on the assets I hold as being marginable even if I didn't or don't intend to buy them on margin. Like I cant borrow on stocks under $5 so I keep penny stocks in my IRA account as I can't margin it anyway. --------------------- But any way the rub we are talking about is when your on margin and suddenly the broker says xyz can no longer be margined it effects your margin balance. As does a stock your holding that drops below the $5 limit , ( a critical point for stocks ) as they lose their ability to support the margin part of your account. An extreme example would be say you only have 30% on margin and your not worried, but you have half of your holdings in xyz which is 5-1/16 and it drops to 4-15/16 , and out of your margin account so suddenly you are facing a very serious margin call. Jim