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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?

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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.

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  • 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, 2020 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. May 24, 2020 at 13:00

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