A margina account is a brokerage account in which the broker lends cash to the client to buy shares or other financial products. The loan on the account is secured by the securities purchased and in cash and comes with a periodic interest rate. As the client invests with borrowed money, the customer uses leverage that increases profits and losses for the customer. This initial loan amount, expressed as a percentage of the investment amount, is called the initial margin. So if a broker has an initial 50% margin request, that means you have to pay 50% of the total investment before the lender will make you borrow the other half. In trading, it is common for a trader to buy shares on Margin, which means they borrow money from the broker to buy more shares than they would normally have been able to buy. The guarantee of a margin account can be the money paid into the account or securities made available and represents the funds available to the account holder for further trading of shares. In U.S. futures, margins were previously referred to as performance bonds. Most exchanges today use the Standard Portfolio Analysis of Risk (SPAN) methodology, developed in 1988 by the Chicago Mercantile Exchange to calculate margins for options and futures.
For example, a trader has $2,000 in cash, but wants to buy a stock that will cost him $3,500, and then they would borrow $1,500 from his broker to complete the purchase. As the trader lends money on the margin, they will pay interest on the amount borrowed, just as you would if you borrowed money from your bank. For investors, it is important to have the purchase on Margin themselves. Getting a margin call means that in our example, you must not only repay the initial $5,000 of the principal, but also pay the margin call. However, if the stock goes up from $10 to $20, you just earn $15,000 without investing all your money. Margina accounts must follow a margin agreement that the investor must sign, as well as regulations imposed by the National Association of Securities Dealers, the Federal Reserve and even the New York Stock Exchange. The futures margin generally represents a smaller percentage of the face value of the contract, usually 3 to 12% per futures contract, compared to 50% of the face value of securities purchased on marginals. Maintenance margin is the minimum amount to manage at any given time in your account. What you need to know is that the broker acts as a lender and, as such, the broker uses the funds on the securities account as a guarantee against the credit balance. Since the money was lent to the merchant, the broker will continue to calculate denzins. This is what financial experts call the margin rate. A cost-price scissor involves situations in which a vertically integrated company in the market hinders the competitiveness of its downstream competitors, in i) by increasing the wholesale price of its essential inputs and/or (ii) by reducing the retail price of the product/service.
Sometimes the margin return also takes into account peripheral fees such as brokerage fees and interest paid on the amount borrowed. The margin rate is usually based on the broker`s call. The Federal Reserve uses open market transactions to influence the margin rate. What do you mean? If they (the government) buy more securities, lenders will have more money, reducing margin rates. If the opposite is true (the state sells securities), the money is deducted from lenders, resulting in higher interest rates. Margin purchases relate to the purchase of cash securities borrowed by a broker, with the securities purchased being used as collateral.