I think I understand the concept behind margin accounts, but I want to be sure so I am using a made up example to ensure that I don't burn myself in real life.
If I have 10,000$ in stocks in a Reg T margin account with 25% minimum maintenance margin requirement, and buy 10,000$ worth of stocks on margin. Suppose the value of my shares that I bought on margin drops by 10% but the original 10,000 stays flat (same value).
- Do I owe the broker money now, and if so will I be paying interest on it? How much do I owe interest on?
- If the answer to 1 is yes, will adding cash to my account equivalent to the loss and then buying stocks using my newly deposited cash cover my losses and prevent me from paying more interest?
Based on my limited understanding:
The answer to question 1 is yes, and I would own interest on the 1000$ (since that was the amount I lost while margin trading).
The answer to question 2 is yes. As long as the amount I deposited is greater than my loss, I would not owe any interest.