3

When a stock is leveraged 2X or 3X, it will have a higher margin requirement for obvious reasons.

For a non leveraged stock, what does a higher margin requirement say about that stock?

Here are some examples:

MSFT - 25%
INTC - 25%
YRD - 100%
STMP - 35%
VRX - 100%
UNG - 25%
TWTR - 35%
CYBR - 50%
JUNO - 70%

Why are YRD, VRX, CYBR, and JUNO all 50% or more margin requirement?

6

It is a question of how volatile the stock is perceived to be, its beta correlation to the S&P500 or other index.

Margin requirements are derived from the Federal Reserve, Self Regulatory Organizations, the exchange itself, the broker you use, and which margining system you are using.

So that makes this a loaded question.

There are at least three margin systems, before you have your own risk officer in a glass room that doesn't care how leveraged up you get.

Brokers primarily don't want to lose money.

0

It's about how volatile the instrument is. Brokers are concerned not about you but about potential lawsuits stemming from their perceived inadequate risk management - letting you trade extremely volatile stocks with high leverage.

On top of that they run the risk of losing money in scenarios where a trader shorts a stock with all of the funds, the company rises 100% or more by the next day, in which case the trader owes money to the broker.

If you look in detail you'll see that many of the companies with high margin requirements are extremely volatile pharmaceutical companies which depend heavily of FDA approvals.

  • "its not about how volatile it is" "its about how volatile it is", this is basically what you wrote, but you are write about things that could be volatile in the future, and brokers themselves don't want to lose money and have final discretion over raising margin requirements higher than regulators and exchanges and SROs dictate. – CQM Nov 19 '16 at 22:08
  • Margin is based on historical volatility. I did not once mention it not being about volatility. – misantroop Nov 19 '16 at 22:13

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