Margin

Introduction to Margin Concepts

​Margin Vs. Cash

• ​Cash

  • Cx pays in full

• ​Margin

  • Cx pays part of purchase price

  • ​B/D lends the balance

Long Margin Accounts

• ​Long Market Value (LMV)

  • ​Purchase Amount

• Debit Balance (DB)

  • Initial ​Loan

• ​​Equity (EQ)

  • ​To find equity in a long margin account:

    • ​LMV - DB = EQ

​Equity?

Multiple Choice

To find equity in a long margin account:

• the debit balance must be subtracted from the long market value

• Not enough information given

• the debit balance must be added to the long market value

• the long market value divided by the debit balance

Multiple Choice

• $19,000

• $17,500

• $12,000

• $7,000

Types of Initial Transactions

Initial margin- Must be 50%. However, FINRA sets a minimum $ Equity req. of $2K

Thus, for Example 2, $2K is the initial margin requirement, NOT $1,500​

Multiple Choice

Cx buys 100 shares of PDQ @ $28 as the initial transaction in a new margin account. How much do they need to meet the requirement?

• $1,400

• $2,800

• $2,000

• $700

Multiple Choice

Cx buys 100 shares of PDQ $28 as the initial transaction in a new margin account. PDQ rises to $38. What is the Equity after this change in the market value?

• $1,900

• $2,000

• $3,800

• $3,000

​Explanation

• ​Think buying a house

  • ​Original Loan = DB

• ​Market rises

  • Equity increases​​

• ​Debit Balance

  • Stays the same