Support/FAQ - Margin Trade

Margin Trade

What is margin trading?
It is a transaction of securities done on credit extended to the customer by a security company.

Do I have to open a cash account to trade on Margin?
No. No interest occurs until you exceed your equity. In other words, As long as you don’t exceed your cash balance, it works as a cash account.

What is pattern day trader?
An account which daytrades at least four times in a five-day period, and for which same-day trades make up at least 6% of the trader’s transaction during that period.
*Daytrade is to buy and sell (or sell and buy) a particular security in the same trading day.

Example:
If a trader does 200 trades within five business day, 192 trades out of 200 are held overnight and the rest of 8 are buys and sells of same stock which means 4 day trades.
In this case, even though he does more than 4 day trades, he would not be deemed a pattern day trader since his total daytrade of 4% is less than 6% of the trades total trades..

What is initial requirement?
It is initial dollar amount or marginable securities that a brokerage client is required to deposit with a broker before placing margin transaction. The initial margin requirement is 50% of the purchase price (or the proceeds of a short sale). It would be 100% for non-marginable stocks (stocks below $3, Mutual fund, and others).

What is maintenance margin requirement?
A sum, usually, smaller than, but is part of the initial margin, which must be maintained on deposit at all times. The maintenance margin requirement is 25%. If an account is concentrated, it is 40%. Stocks between $3 and $5 are 50%.

What is a concentrated account?
An account is considered concentrated if the total margin equity of the account is less than the market value of any one position. For example, if an account has $40,000 of account equity and were holding $40,500 worth of XYZ, the account would be concentrated because the position of XYZ exceeds the total margin equity in the account.

What is equity percentage?
Your equity percentage is your equity divided by the total market value of all your stocks. It can be calculated by the following formula:

Equity percentage = (Your Equity / Market Value ) × 100

If you are holding non-marginable stocks (below$5, mutual funds and others), you must subtract this amount out of both your total equity and your total market value before calculating your equity percentage.

Equity percentage = (Your Equity － Non-Marginable Stocks) ／( Market Value － Non-Marginable stocks ) × 100

I closed my overnight position today. Why isn't my buying power updated?
Your account begins each day with a certain amount of excess equity (day trading buying power). Per FINRA rules, this amount cannot increase. However, it may decrease intra-day due to trading losses sustained in your account. The decrease in buying power due to losses is calculated to prevent margin calls in your account.

My buying power (excess equity) is significantly lower than what I think it should be.
Please keep in mind that the sale of overnight positions will not free up your buying power during the day, but will be updated for the following day. Also, stock priced below $5 must be fully paid for and you will not receive margin on these cash positions. You may also have live or pending orders, which will decrease your buying power.