Margining system at prop shops for small caps

[zdreg]

Quote from Don Bright:

We are simply under the rule that Stocks $5.00 and under are subject to 100% margin. They are deemed "non-marginable" - we don't worry too much about it for larger trader sub-accounts, but when someone has 100% of their equity in some little stock AND has a lot of other positions and trading, well, we ask them to make adjustments.

Don

first of all as previously mentioned that is a House rule.

non marginable is not the correct term. from a legal point they can be margined at the current 50%. it is marginable but at 100 percent per some house rule.

 

[Don Bright]

Quote from zdreg:

first of all as previously mentioned that is a House rule.

non marginable is not the correct term. from a legal point they can be margined at the current 50%. it is marginable but at 100 percent per some house rule.

According to FINRA rule 2520, if you make frequent security trades and certain other .... If the stock closes below $5.00, the maintenance requirement is 100% of ....
and above $5.00

Special NASD Notice to Members 99-33
securities position where the stock sells at $5 per share or above, Rule. 2520 requires maintenance margin of $5 per share or 30 percent of the current market .

Just a cursory google search, my Compliance Officer is away today, LOL.

As I said, however, we "can" give some wiggle room for adequately capitalized traders. We are only concerned when the stock in question takes up all the trader's equity. This leaves no room for normal trading.


Don

 

[Swan Noir]

Seems to me the best qualified to judge the risk are those who run the prop shop. If they are telling you that a concentrated position in a particular security is high risk ... well, they are probably correct.

The key has to be making money within reasonable risk parameters; not just making money till the risk catches up to you.