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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: Apakhabar who wrote (8144)	4/30/2000 4:42:00 PM
From: OZ	Read Replies (2) \| Respond to of 18137

Computing Buying power Hello Apakhabar, I am not going to talk about the other issue anymore. But I will address how to compute buying power. Your example was not quite correct. With 100k cash, you go long 1000sh @50, stock goes to 40, account is worth 90k, buying power is 180k minus 40k = 140k. If in the example above you were talking about holding overnite. It would actually be computed as follows: E EQUITY MMR MARGIN MAINTENACE REQUIRMENT EE EXCESS EQUITY BP BUYING POWER With 100k cash, you go long 1000sh @50, stock goes to 40, account is worth 90k, THE NEXT DAY buying power is calculated as E (90K) - MMR (10K)= EE of (80K) x2 = BP (160k) The key is that on the next day, buying power is reduced by 25% (which is the MMR) of the previous closing value for a long. In this case 25% of the 40K previous closing value of the long is only 10K. So you subtract the account equity (90k) by the min. maintenance requirement (10K) which gives you Excess Equity of 80K and multiply that by 2 to get a BP of 160K. A short is calculated the same except that the MMR is 30% of the current closing value I am not trying to split hairs here (20K difference in buying power is important) but trying to point out something that many traders do ot understand. Basically, what this says is that under the right circumstances, any one with a margin account cant ultimately buy stocks up to a 4 to 1 margin ratio (25%). The new margin rules are proposing on allowing this without the need to go overnite. If you decide that you meant to say that your examples were not assuming an overnite position, then it is still incorrect because the long stock can go to ZERO on that day and maximum Buying Power (if you closed all positions) would remain unchanged.