For my own understanding of what I am trading, I am trying to figure out what are the real, actual margin equations being used. For the sake of example, let's use AAPL.
1. For short selling, what price is used for margin calculation? Bid, Ask, Last or something else entirely?
2. My broker (E*trade currently) claims that the short requirement is 30%. This is clearly different than the 50% that other sites around the Internet (including FINRA) say. I thought the house can increase margin requirements, not reduce it?!
3. The Bid/Ask/Last for AAPL are $128.61/$128.70/$127.14. The margin requirement (in their calculator) says the margin will go up by $32.18. This is very close to, but not exactly 30% of any of the above numbers. It's close to 25%. I can't tell what other number could possibly be used here.
4. When buying on margin, I am borrowing cash to buy securities. However, when short selling, I am borrowing securities to sell for cash. The Margin interest is always quoted in dollars, but I am borrowing shares. How do I figure out what the interest will actually be? If its based on the cash value of the security, does that mean my interest rate changes per day? And again, when and how how is the price decided?
(and a meta note: where the heck do I find this documentation? My other brokers don't seem to have clear, straightforward equations on what *exactly* is going to happen.)
5. My (admittedly weak) understanding of accounting is that assets = debt + equity. I am having a very hard time finding out how people do accounting for their stocks and margin. Every time I search for it, everyone talks about the margin of the company itself, rather than the trader. What exactly is my equity when I short sell (or buy on margin) ?
If there are any books I could read on this subject, or even and Excel spreadsheet showing an example, it would help me figure this out. There seems to be hardly any websites out there that go into the detail of what's going on, instead repeating that same "50%" that everyone else does. I did do some searching before I asked here! (I've read Finra rules 4210, which seem to be lofty ideals for how much margin you can use, but which no broker actually is able to reach.)
1. For short selling, what price is used for margin calculation? Bid, Ask, Last or something else entirely?
2. My broker (E*trade currently) claims that the short requirement is 30%. This is clearly different than the 50% that other sites around the Internet (including FINRA) say. I thought the house can increase margin requirements, not reduce it?!
3. The Bid/Ask/Last for AAPL are $128.61/$128.70/$127.14. The margin requirement (in their calculator) says the margin will go up by $32.18. This is very close to, but not exactly 30% of any of the above numbers. It's close to 25%. I can't tell what other number could possibly be used here.
4. When buying on margin, I am borrowing cash to buy securities. However, when short selling, I am borrowing securities to sell for cash. The Margin interest is always quoted in dollars, but I am borrowing shares. How do I figure out what the interest will actually be? If its based on the cash value of the security, does that mean my interest rate changes per day? And again, when and how how is the price decided?
(and a meta note: where the heck do I find this documentation? My other brokers don't seem to have clear, straightforward equations on what *exactly* is going to happen.)
5. My (admittedly weak) understanding of accounting is that assets = debt + equity. I am having a very hard time finding out how people do accounting for their stocks and margin. Every time I search for it, everyone talks about the margin of the company itself, rather than the trader. What exactly is my equity when I short sell (or buy on margin) ?
If there are any books I could read on this subject, or even and Excel spreadsheet showing an example, it would help me figure this out. There seems to be hardly any websites out there that go into the detail of what's going on, instead repeating that same "50%" that everyone else does. I did do some searching before I asked here! (I've read Finra rules 4210, which seem to be lofty ideals for how much margin you can use, but which no broker actually is able to reach.)
