Fact or Fiction: can you Lose it all on a Margin Call?

You pay interest on the stocks loaned to you by the broker — and this can Bangkok really add up. Regulation T does set different minimum initial margin rates for some stocks, but in general it’s 50 percent. It’s safe to put all of your savings into a margin stock as long as you’re confident it will increase in value. It doesn’t matter how confident you are in a stock’s rise, the market can be very unpredictable. It’s very important to have cash reserves ready to meet margin calls. Stock dividends should never be taken into account when calculating profit from margin stocks. A stagnant stock is not a good candidate for buying on margin.

Margin calls are typically issued via a simple phone call or e-mail, or a notification in your account with the broker’s Web site. If you have stocks worth $10,000, bought on margin with $5,000 in cash, you’ll have no equity if the stock’s value falls 50 percent. You can control when your broker sells off your shares after a margin call. You’ll have to sell off your shares at their reduced value to pay off the loan and meet the account’s maintenance minimum. The loss in value ($5,000) comes out of your equity ($5,000), leaving you with no equity, and still owing your broker for the other $5,000. Your broker will sell your shares off in a way that minimizes their financial risk, not necessarily in a way that works to your advantage.

If your margin stocks fall enough in value, you could actually end up owing your broker money. In 2008, a CEO lost almost half a billion dollars on a margin call. If the stock loses enough value, when your broker sells off the shares, the proceeds might not be enough to cover the cost of the loaned stocks. You’ll owe for whatever remains unpaid. The CEO of Chesapeake Energy in Oklahoma City suffered a massive loss when his stock, purchased on margin, fell in value.

If a stock bought on margin increases in value and you sell it, some portion of the profit will be used to repay the broker’s loan. As long as a stock bought on margin neither gains nor loses value, you should hold onto it, since you aren’t losing anything. The stock loaned to you by the broker will be paid for at the original value. If you beloved this article and you also would like to collect more info concerning bangkok apartment kindly visit the website. Since you sold them at the new, higher value, you can make a lot more money this way.