0

I'm trying to understand the logic of RegT margin accounts.

Let's assume that I have a $10,000 account and I purchase stock XYZ worth $5,000.

Will my broker automatically give me a loan of 50% (=2,500) for that position, so that I have a debit balance of 2,500? Or, because I have enough money, will I pay the full price for it without borrowing money?

In other words, do I always borrow money from my broker when buying a stock in a margin account?

0

There is no margin involved until you use up the cash balance in your account.

In your example, you would not be on margin until your purchase exceeded $10k.

As a side note, if you have $10k in your account and you purchased $5k of a marginable security, your equity position would be marginable, enabling you to purchase another $5k of stock with that purchase.. Any combination of marginable securities and cash would allow you to purchase an equal amount of additional securities.

| improve this answer | |
  • Thanks for your answer. Not sure if I'm following. If I purchased $10k of that YXZ stock, what happens when I try to buy stock ABC for another $10k? Then I do not have any cash left for the initial margin requirement of $5k. Do you mean that my first purchase of stock XYZ can be used for that? – Paul123 May 23 at 21:38
  • Yes, fully paid marginable securities can be used to collateralize additional purchases. The formula is (Fully paid securities) x (Margin %) / (100% - Margin %). So if magrin is 50% and you have $10k of fully paid stock then it's ($10k * 0.50)/(1 - 0.50) = you can buy another $10k of stock. Now you have $10k of equity and $20k of stock. $10k/$20k = 50% margin. – Bob Baerker May 24 at 13:00

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.