Probably shows that the probability that the stock will become full-paid is quite high even though it was bought on margin given the high market value
Can you loan out stocks bought on margin at IB?
- Thread starter Maverick2608
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Probably shows that the probability that the stock will become full-paid is quite high even though it was bought on margin given the high market value
Well I read the OP's question and I didn't see any responses atm so I decided to post my own answer.
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Example: 1 million USD invested in stocks fully paid. 1 million USD borrowed on margin invested in stocks.
In this case the ratio is 100% or 200%?
In this case the ratio is 100% or 200%?
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In this case, the $1 million USD that's invested in stock that's fully paid would be able to be loaned out. Whether the $1 million USD worth of stocks that's bought on margin can be loaned out would depend on whether the market value of the stock is 140% of the margin debit balance which I would take it is the amount you borrowed to buy the stock. This is how I understand it.
Ok, so for it to be 140%, the stocks bought for the USD 1 million borrowed funds, must increase to 1.4 million USD, before they can be loaned out. Is that how you would interpret it?
So the margin debit balance refers to the total amount of money that you've borrowed from your broker to purchase securities on margin.
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Yes. That's my interpretation. Because the reason is that the stock that you bought on margin is technically not yours but is supposed to be pledged as collateral to the broker for the margin loan so you shouldn't be allowed to lend them out at all just like the broker wouldn't allow you to withdraw the cash that you obtained from shorting a stock but in this case, IB is actually allowing you to lend those shares that you bought with borrowed funds out so it's understandable that the broker would want more assurance that you would be able to pay back the margin loan with the stock because when s*** hits the fan the broker can't go after your personal assets. When the market value of the stock is at 140% of the amount borrowed, then the risk of the stock value going to zero thus impacting your ability to pay back the margin loan is very low or I should say relatively lower thus the broker would be more comfortable with you lending out these shares vs when the shares are only trading at 75% of the amount that you borrowed to buy the stock.
That's what I would think is the rationale for the "140% market value over margin debit balance" requirement. I stand to be corrected of course.
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that’s right. Market value has to be higher than cost, but $50k balance is easier.
I gout paid FPL interest while I use some small margin.