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Strategies & Market Trends : The Final Frontier - Online Remote Trading -- Ignore unavailable to you. Want to Upgrade?

To: Nazbuster who wrote (6183)	1/13/1999 3:12:00 PM
From: Wayners	Read Replies (1) \| Respond to of 12617

I just spent a day studying the margin rules. Here's what I've figured out. In the following C=your current equity, M=margin loan amount, S=current value of all marginable securities in your portfolio and MR equals initial margin requirement (.5 for Reg. T) or maintenance requirement (.25 for Rule 2520). For either Reg. T. or Rule 2520 calculation, your buying power (BP) is: BP=(C-(SMR))2 When you buy any security using any margin, the margin loan amount stays constant even while the value S may fluctuate up and down and your C fluctuates up and down. You have to recalculate M everytime you initiate a new opening transaction. All of the following is going to assume only long positions in the portfolio. C=S-M Therefore, BP=(S-M-(SMR))2 You have to do two calculations at the end of each trading day to see what your buying power is going to be for the next day. Your buying power for the next day will not change no matter what transactions you do the next day. For Reg. T calculation; BP=(S-M-(S.5))2 For Rule 2520 calculation; BP=(S-M-(S.25))2 If the Reg. T calculation comes out less than or equal to zero; you are okay as long as you don't buy anything else. You will not geta maintenance call if the Reg. T. BP is less than zero. You will get a Reg. T margin call if you buy anything and hold it overnite. You will also get a Reg. T call if you daytrade under the Rule 2520 daytrading limit but you end up with a net loss on the trades for the day. The amount of the call will be equal to the amount of the loss. If the Rule 2520 calculation comes out less than or equal to zero; you will get a Rule 2520 maintenance call and will have to pony up more money or sell something to at least get the BP up to zero. If the Rule 2520 calculation comes out above zero, you can daytrade as many trades as you want as long as no single trade exceeds that amount. You run the risk of getting a Reg. T. call if you lose money on the daytrade(s). To calculate the price where you get a maintenance call its: P=4M/(3#shares)