What Does Margin Agreement Mean
A “margin account” is a kind of broker account in which the broker lends the investor cash to buy securities using the account. The margin increases the purchasing power of investors, but also exposes investors to the potential for significant losses. Here`s what you need to know about Margin. However, your broker may not be required to make a margin call or inform you that your account is under the company`s maintenance obligation. Your broker can sell your securities at any time without consulting you beforehand. In most margin agreements, even if your company offers to give you time to increase equity in your account, it can sell your securities without waiting for you to respond to the margin call. Variety mortgages (MRAs) offer a fixed interest rate for an introductory period, and then the interest rate adjusts. To determine the new interest rate, the Bank adds a margin to an established index. In most cases, the margin remains the same for the duration of the loan, but the index rate changes. To understand this more clearly, imagine a mortgage with an interest rate has a margin of 4% and is indexed in the cash index. If the cash index is 6%, the interest rate of the mortgage is the index rate of 6% plus the margin of 4% or 10%. Many margin investors are familiar with the Margin Call “routine” in which the broker requests additional funds when the equity in the client account falls within certain required values.
Normally, the broker leaves two to five days to answer the call. The broker`s calls are usually based on the value of the account at the close of the exchange, as different securities rules require an valuation at the end of the day of accounts receivable. The current “conclusion” for most brokers is 16 p.m., Eastern Time. If your broker`s maintenance requirements are 30% (30% of $6,000 -$1,800), you will receive a margin call for $800 in cash or $1,143 of fully paid marginal securities. ($800 divided by (1-30) – $1143 – or a combination of both – to compensate for the difference between your equity of $1,000 and equity of $1,800. Suppose you put $10,000 into your margin account. Since you put 50% of the purchase price, it means that you have a purchasing power of $20,000.