Can a broker's margin resources be exhausted?

B

Bickz

this is a question for those who know the inner workings of brokerages and margin accounts.

when a broker offers a margin account, do they actually have a pool of money from which the client draws from? and if so, can this pool potentially be exhausted at any time, denying the client leverage?

if there is indeed a pool of money that does decrease with use, then it seems to me that brokers who offer 100:1 margin rates could potentially be in danger of exhausting their available funds, thereby having to deny clients from borrowing money.

is this really how a margin account works, or does it work differently?

thanks!
 
No, the brokerage does not 'back' the margin. They just eat a % interest spread to "loan" you money that they never had.


Quote from Bickz:

this is a question for those who know the inner workings of brokerages and margin accounts.

when a broker offers a margin account, do they actually have a pool of money from which the client draws from? and if so, can this pool potentially be exhausted at any time, denying the client leverage?

if there is indeed a pool of money that does decrease with use, then it seems to me that brokers who offer 100:1 margin rates could potentially be in danger of exhausting their available funds, thereby having to deny clients from borrowing money.

is this really how a margin account works, or does it work differently?

thanks!
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