I am just educating myself on margin trading (I have no real desire to try it any time soon) and was wondering if you may help me with a scenario and a few basic questions to see if my logic is correct.
I have a margin account where I can put down 30% and leverage 70% from my brokerage (pretty standard I assume).
I would like to go long on a stock that is trading at $4.00 per share.
I put $10k into my margin account.
I purchase 8,333 shares putting 30% down ($10,000) and borrowing $23,333.
I am willing to lose $5,000 MAX. So I set a stop loss at approx 3.60 (.40 cent loss per share or roughly $3,330 dollars).
- Is this correct? I assume if the stop loss is executed I have to transfer 3,330 into the margin account to make up for the loss.
- What if the stock closes the day at 3.95 (0.05c loss per share) do I have settle up with $416 before end of day? Do I have to close out my entire position? Does this depend on the broker? Do I only have to close out if they place a margin call ?
- What if the alternative happens and the stock closes at 4.05?
Thank you and please let me know if at any point I was unclear.