Which of the following transactions if any must be done in a margin account quizlet?

Terms in this set (81)

The account starts out as follows: $18,000 − $9,000 = $9,000 (LMV − DB = EQ). After the stock rises to 70, the account looks like this: $21,000 − $9,000 = $12,000; SMA = $1,500. For every $1 increase in market value, 50 cents of SMA is created. After the stock falls to 50, the account looks like this: $15,000 − $9,000 = $6,000; SMA = $1,500. An increase in market value creates SMA but a subsequent decline has no effect.

The Regulation T requirement is 50% of the current market value of $4,400, which equals $2,200. Equity equals the current market value of $4,400 minus the debit balance of $1,750, which equals $2,650. Excess equity is calculated by subtracting the Regulation T requirement of $2,200 from the current equity of $2,650, which equals $450. Buying power is then calculated by multiplying the excess equity of $450 by 2, which equals $900.

When equity is between the initial (50% of LMV) requirement and the maintenance requirement (25% of LMV), an account is described as restricted. This account has $25,000 of equity which is $5,000 below the initial requirement. To bring the equity to 50% of the market value, the customer may deposit $5,000 in cash or sell $10,000 of securities. If $10,000 of securities are sold, LMV becomes $50,000, the debit falls to $25,000 and equity is at $25,000, exactly 50% of the LMV. However, if a customer is using securities to eliminate a restriction (either by selling or depositing fully-paid securities), the customer must sell or deposit an amount equal to twice the restriction.

Sets with similar terms

Trading on margin is a common practice in the securities industry. It allows customers to increase their trading capital by borrowing either cash or securities through their BDs.

There are 2 types of margin accounts: Long and Short. In a long Margin account, customers purchase securities and pay interest on the money borrowed until the loan is repaid. In a short margin account, stock is borrowed and then sold short, enabling the customer to profit if its values decline. All short sales must be executed through, and accounted for, in a margin account.

Stock can be borrowed from several sources for short sales in a margin account: the member firm executing a short sale on behalf of the customer, margin customers of that member firm, other member firms, specialized companies known as STOCK LENDING FIRMS, and institutional investors. The most common source is another customer's margin account, but permission must be given by signing a consent to loan agreement, which we'll discuss later in this unit.

Margin accounts offer some advantages for customers. In a margin account, a customer can:
-Purchase more securities with a lower initial cash outlay and
-leverage investment by borrowing a portion of the purchase price.

Leveraging magnifies the customer's rate of return or rate of loss in adverse market conditions.

***The advantages of margin accounts for BDs are that:
-margin account loans generate interest income for the firm and
-margin customers typically trade larger positions because of increased trading capital, generating higher commissions for the firm.

A)
Fully paid for marginable securities totaling $1,600 in market value
B)
Cash in the amount of $1,600
C)
Fully paid for marginable securities totaling $3,200 in market value
D)
Fully paid for marginable securities totaling $6,400 in market value

Answer is D

E: When meeting a Regulation T margin call with cash, 100% of the call must be deposited—in this case, $3,200. If using fully paid for marginable securities to meet the call, a deposit totaling twice the amount of the call must be made—in this case, $6,400. This is because securities are only marginable to 50% of their value.

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Which of the following transactions if any must be done in a margin account?

Which transaction can only be performed in a margin account quizlet?

What is a margin account quizlet?

Which of the following must be signed by a customer wanting to open a margin account?