Trading on Margin w/out borrowed funds, and shorting

C

cashmoney69

I opened my margin account with scottrade for just alittle over 2000.00. In the margin agreement, it says that I can lose more funds than my deposit in my account by a decline in the value of securities that are purchased on margin may require you to provide additional funds to scottrade to avoid the forced sale of those securities in your account.

SO:

1. How can I lose more than my original funds IF I am not shorting ANDI'm NOT borrowing any funds from them.

------------

Under the short sales agreement it says: (i cut out some parts)

" You agree to advise us prior to entering a sell short order"

- I have to call them everytime I want to short?...

"Short sales can be subject to a buy in from settlement date and thereafter"

- what does that mean?

"Scottrade does not guarantee a minimum time to short a position"

- Does this also mean they can take their time in covering my position? :eek:

" If the lender should call in your borrowed securities for any reason such as a tender offer, and you cannot cover in time to make delivery, we may hold you responsible for any resulting loss.

- Also, wtf does this mean?, why does this crap have to be so confusing. :(

- nate
 
If you buy stock on margin you can buy up to $4,000 worth of stock with $2,000 in margin. If the stock gaps to $0 overnight, you lose $4,000. So the margin risks are not just on short positions but on long positions. If you do not exceed your capital amount in buying or do not short, you will have no problem.
 
if you are confused by that, i suggest closing that account......

also, im surprised they let you trade on margin. did you actually get approved for the account?

you start with 2000$ and buy 2000$ worth of securities.

now because you're holding equity worth 2000$, you use that to leverage another 62%(scottrade's leverage IIRC). now you have 3240$ worth of securities.


lets say you put everything in GM and they went bankrupt. you now owe scottrade 1240$ of their money you lost....
 
<i>1. How can I lose more than my original funds IF I am not shorting ANDI'm NOT borrowing any funds from them. </i>

You can't.

<i>"Short sales can be subject to a buy in from settlement date and thereafter"</i>

That means the shares you borrowed may need to be delivered back to the rightful owner at any time. In order to do, you are forced to buy them on the open market at prevailing prices.

<i>"Scottrade does not guarantee a minimum time to short a position"</i>

This is saying the same thing: your shares may be called at any time, even if you just opened the position.

<i>- Does this also mean they can take their time in covering my position? :eek: </i>

No, your buy order is subject to the same order precedence rules as any other buy order.

<i>" If the lender should call in your borrowed securities for any reason such as a tender offer, and you cannot cover in time to make delivery, we may hold you responsible for any resulting loss.</i>

I have never heard of this. Presumably in a situation where your broker cannot provide the normal advance notice of a buy in, your covering price will be calculated retroactively even though you didn't make a market transaction. I'm just guessing though.

Short sales of stock are an inherently complex transaction.

Martin
 
Quote from krazykarl:

if you are confused by that, i suggest closing that account......

also, im surprised they let you trade on margin. did you actually get approved for the account?

you start with 2000$ and buy 2000$ worth of securities.

now because you're holding equity worth 2000$, you use that to leverage another 62%(scottrade's leverage IIRC). now you have 3240$ worth of securities.


lets say you put everything in GM and they went bankrupt. you now owe scottrade 1240$ of their money you lost....
More...

Thanks for your concern, I'm new to this. I'll get used to it....I'll have to. The margin account took 2 seconds, I just signed my name on this piece of paper and there ya go :). I had to ask for a copy of my agreement though :eek: That was kinda... odd.

Sparohok, thanks, that clears some things up. :)

- nate
 
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