Was looking to set one up, they told me they match my margin buying power with the cash I put in. Isn't that pretty freakin' risky if you decide to use all of it? If I put 20,000 in and I have 40,000 in buying power after upgrading to margin, how far does that thing have to fall before I get a margin call?
Margin is magic but when you are an experience trader,until then stay away from it. You are gambling and better to gamble with your money. Stay away from it until you develop the art of trading in the stock market.
In some other cases it might make sense . If you have money coming in at a later date and want to invest it in a particular stock and then market takes a fall and gives you a discount, you might want to take out that loan. When you borrow the full amount to purchase (and aren't considered a patterned day trader/) you are at 50% margin. A 30% drop would make you close to a call and who wants to be forced to sell when the market is low. A small amount of margin with blue chips is pretty safe imo. Anything other than a blue chip, you are playing with fire, especially buying all the broker says you can.
Margin can go out 50, 70%. Depends on what stick you are buying. Buy FUN and they'll lend you $1.70 fir every dollar you have. Funny, not so funny story. 1999 I was loaded to the gold in NOVL stock. It was climbing and I had $600,000 if the stock with a big margin. One night I got a call ( they were still doing that at the time) and they partially called the margin due to higher risk. Had three days to come up with $60k or sell part of the position.
I have Etrade margin account and for my $30K they allowed me ~$60K more for total of ~$90K to invest in NOK.
I have almost 12500 shares of NOK.in my account that I bought at $7.00. I still have ~$10K in the account available for investing due to the appreciation of these NOK shares.
In summary, I bought 12500 shares of NOK with only $30K. Amazing.... If I did not have the Margin Account I could only buy ~4300 shares.
It is nice and dandy when shares you buy appreciate But if the shares depreciate then Margin Calls keep coming and you have to sell some shares to cover the calls. If the shares collapse then there is a chance that you have to sell all to cover the margin call and the amount you lose could be as much or even more that your initial investment.
joussefi, I think you are leaving out something. I am not familiar with the rules outside the U.S. , but inside.....The Fed initial margin requirement is 50%, which means you could only buy 60k with an initial investment of 30k that you plunk down all at once. If the stock rises, yes, buying power would rise. if nokia drops to about $6.20 you will get a call since you will have less than ETRADE's standard 25% margin maintenance (even before then... if they change the requirement on you- which they can).
luda, you need to be smart more than confident. Imo, buying nok on margin at 7.72 would be a mistake. Buying any volatile stock on margin is a mistake. I wouldn't rely on the broker to stick with a 30% maintenance requirement in that case.
The best time to use it is after a market downdraft and to buy blue chips. That situation makes it much less likely you will see a 30% drop... though a drop like 2009 could still have wiped someone out who went the full 50% before the big drop.
of course, you don't need to go to a 50% margin equity position right off the bat. If you buy on margin when there is euphoria, you can lose out even with stocks like GE and CSCO as in 2000 and anything just prior to 2009.
you could go for "I can't believe it's not margin". That's what I refer to option buying. Most of the time it tastes good, but once in a while there is a distinct bitter aftertaste. Still, I like it far better than margin. I trade in an Roth, so i'm not allowed to use "margarine". Plus no accountant needed to help work through the "maze" of trades.
depends on your broker and the stock...ask your broker before you pull the trigger
you should be safe w NOK up to 30-35% loss. Wouldn't go all in unless you can afford that dreaded call?
margin buying is historically high at the moment
margin_call, "could'", not "should" be safe at 30%. Volatile stocks like nokia often have higher margin maintenance requirements. Even if maintenance is 25-30% maintenance NOW, the broker can change the requirement. Certainly NOK could meet the criteria for higher maintenance and this guy appears to be talking about just buying nokia, so the broker could impose stricter margin reqs because of the concentration.
The "general" rule of thumb is about 30% if you utilize you full initial margin buying power. Example, you buy 100k worth of stock with 50% equity. It collectively goes down 30%, you now have 20k equity out of 70k value, and you slip below 30% equity. That will be a definite margin call at most brokerages that I know of. But it might be less than a 30% drop before you get a call...
If the margin maintenance for a stock in your portfolio changes (the brokerage is free to change the maintenance requirements in risky stocks or stocks below a certain pps), or if you have a concentrated position... eally for any number of reasons... so in reality it might much less than 30%. If you have blue chips, then 30% would be closer to reality.