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Strategies & Market Trends : Position Trading Forum -- Ignore unavailable to you. Want to Upgrade?

To: DWalmsley who wrote (5628)	11/8/1998 12:12:00 PM
From: Pruguy	Read Replies (1) \| Respond to of 7247

why don't you ask the broker who is gouging you these types of questions. This way you will scratch the surface of the services he can provide and which you are paying for.

To: DWalmsley who wrote (5628)	11/8/1998 12:17:00 PM
From: Tim Luke	Read Replies (3) \| Respond to of 7247

D, it really depends on what kind of trader you are. lets take me for an example first. i'm a day and position trader and i will do at least 25 trades a week and some time much more then that....i am using discover, which is a little better lately but i'm sure there are better....i will be going with MB Trading this week for real tick 111 trading (the level 2 will be help to this thread BTW)...IMO MB Trading is the elite of all brokers but if your not doing that much trading then you might be better off with a discount broker like brown & Co. or datek.... i can't recommend any of these companies to you since i never traded with them. the best thing to do is click on the threads of some of these brokers and ask questions from the people that use them... regarding margin: every trade i do is on margin, so if you have 100,000$ cash in your account that will now give 200,000$ buying power. there are some rules you need to know before you use this tool but for me it's the greatest....

To: DWalmsley who wrote (5628)	11/8/1998 3:19:00 PM
From: Don Pueblo	Read Replies (2) \| Respond to of 7247

The basic thing about it is that once you have filled out the margin paperwork and been approved, you are set to use the margin at any time you want. Non-margin is called Type 1 account, margin is called Type 2 account. (Shorts are Type 3). If you had 1000 shares of INTC in your type 1 account, and your margin paperwork was approved, you could borrow against your INTC shares to buy something else (even a non-marginable stock). The brokerage charges interest for the loan, just like any other loan. The moment you borrow against that INTC, it goes into the Type 2 account. Let's say you bought 1000 shares of a 3 buck (non-marginable; you have to pay 3 grand to buy 1000 shares) NASDAQ stock last Friday, using margin money, (money you borrowed against your INTC shares). That 3 dollar stock goes into your Type 1 account, since you paid for it in cash. So now your INTC is in Type 2, and your 3 dollar stock is in Type 1. On Monday, the 3 buck deal goes to 4 bucks. You sell, and the proceeds would then automatically pay off your Type 2 account (most firms do it automatically, but you have to check for sure) and you then have your INTC and your cash proceeds in your Type 1 account, (minus commissions and interest on the loan). You would not pay interest on the value of all the INTC shares while they were in Type 2, and the interest stops once you move it back to Type 1. You would pay interest only on the amount of money that you borrowed to buy the 3 dollar stock, and only for so long as you borrowed the money. Let's say the trade goes the wrong way. You sell at a loss of $1,000 dollars. You now have a "margin debt" of $1,000 plus commissions and interest. It shows up on your statement. You have borrowed money against your INTC, and that money must be paid back at some point. For example, INTC goes up and you sell a few shares to pay the debt. Or, you put cash in to pay it and move the INTC back to Type 1. Or, you buy something else to make back the loss, and pay off the debt that way. You can borrow cash for anything against your INTC, you can take cash out of the account and buy a boat if you want. The only problem is that it is a loan, and you have to pay it back. If you borrowed a lot of money, and then INTC went down enough so that there was not enough equity to cover your loan, the broker will sell your stock to cover it and you lose all the stock. If the sale doesn't cover the loan, you still owe the unpaid balance to the broker. In the crash of 1929, margin was 10%, in other words, to buy 1000 shares of a 50 dollar stock, you could put 5 grand in your account and own the 1000 shares on margin. But if the stock goes from 50 to say 3 bucks, you have a $40,000 problem, and you must jump out of a window. That's it in a nutshell.

To: DWalmsley who wrote (5628)	11/8/1998 3:58:00 PM
From: Don Pueblo	Read Replies (2) \| Respond to of 7247

One other thing about margin, since we are on the subject. It's a dangerous game. If you are ever dealing with a broker who is opening a new account for you, and he urges you to open a margin account, it's a red flag. Most reputable brokers shy away from opening new accounts on margin, because they don't know you and they don't know your trading habits. If you are urged to open an account on margin, the chances are that the broker is trying to generate a higher commission. This means that he may not have your best interests in mind. As a matter of fact, a good broker will probably try and talk you out of opening an account on margin even if you request it. Once you start trading in margin money, it's easy to justify a loss because you "don't have to pay for it". You can get the idea that you can borrow more and more, and if you are not careful, you can get into serious trouble. You are paying about 7% per annum on the loan. If the equity you borrowed against goes down to a certain level, you will get a "margin call", which means you either put some cash in the account in 3 days or less, or the brokerage sells some of the stock you borrowed against to cover the debt. Margin calls are kind of like your wife telling you she wants a divorce...not fun at all. The up side is that you do have borrowing power, and you can use it to make money if you are astute. Just remember that margin money is borrowed money, you are paying interest, and the brokerage doesn't give a flying f if you can cover a margin call or not, because they have your stock, and they will sell it if you can't cover the margin call.