margin outline

Short account

·        For selling stock short

·        Opening sale, sell stock before buy shares

·        Closing purchase, buy stock back, cover short sale

·        Profit when price decreases

·        Credit balance, sale proceeds

·        When borrowed stock sold, customer must deposit Reg T to increase credit balance

·        SMV (Short market value)=Credit balance (Cr) – Equity (E)

·        SMA = Equity –(Market value x 50%)

Short account SMA increase

·        Market value decrease

Short account SMA neutral

·        Market value increase

·        Stock value decrease because of stock dividend/stock split

Long account SMA increase

·        Market value increase

An investor has a short margin account with 3 different stocks in it. If one of the stocks goes down in value, what happens to the equity of the short account?

·        Equity increases

·        Market value go down, equity go up

Short account minimum maintenance requirement

·         Minimum maintenance = Short market value (SMV) x 30%

Short account Maintenance Margin call

·        Maintenance Margin call= Credit (Cr)/130%

·        Market value increase, equity decrease

·        Minimum maintenance is 30%

·        Credit balance can not < 130% of market value

·        Investor shorted stock, don’t want stock increase because investor pays > for stock

Minimum Maintenance vs. Maintenance Margin call

·        Minimum Maintenance, market value neutral, credit balance go(es) down

·        Maintenance Margin call, credit balance neutral, market value go(es) up

·        SMA=Equity – (SMVx50%)

·        MM= SMV x 30%

·        Maintenance Margin call = Credit balance/130%

An investor has a short margin account with a market value of $80,000 and a credit balance of $130,000. At what point would there be a FINRA maintenance call for the account?

·        130/130%=$100,000