Questions about Margins

[bobbyusc]

I have recently opened a margin account with TD Ameritrade. I have a few questions:
1. I realize that the margin debt is calculated the at the end of the day, but does this apply to margin money used for day trading? It seems that the margin rate, around 9%, is high if is calculated for day trading. That means Id have to make more than 10% a day just to cover my margin costs. That doesn't seem to be correct.

2. If you day trade, technically the money does not "clear" the account for 3 days. Is this how the balance is figured?

I hope that there is no charge as long as you have no margin holdings at the end of the day, but that seems to good to be true because than the broker would get nothing from it but the trading fees.

Thanks for the help!

[TonyM]

Call your broker and ask. I can tell you that with Scottrade you are only charged for any borrowed funds held overnight. I doubt that your broker is any different, if they are I'd tell 'em to stuff it.

One other thing 9% a day would be worse than robbery at gunpoint, it's 9% apr, so figure 9% of the amount divided by 365 for a rough daily rate. Feel better now?;)

[Pacmanpth]

Actually, from what they (Scottrade) told me, margin interest only begins to accumulate after the trade funds have settled (think it takes 3 days). In either case, interest is an annual thing.

[TonyM]

The interest accrues from the first day following the borrowing of the funds, settlement is overnight, Scottrade has the client view and accept confirmation of all trades from the previous day after midnight when you next log in. No need for t+3 when on a margin account as far as I know, but perhaps an account under $25k is still subject to this, I'm not sure of that but they will be charging you for interest from day one, if they weren't they would be offering 2 days interest free to accounts under $25k...I think the larger account holders would protest a little about that. Not that I have what I would call a large account, but I know I would be complaining;)

I always match up any margin charges with the days held to make sure it is calculated correctly, so I'm positive about that part of it, but the under $25k may have some differences I'm not aware of.

[Pacmanpth]

^ Check your comfirmed trades window next time you do a trade, settlement date will be in 3 business days. Funds are still instantly avaliable on a margin under 25k, but the funds/trades haven't technically settled. On the interest part, I'm not sure of, I've never kept track of settled vs non-settled days of trades and amount to compare to what they charge me for margin interest to see which set of numbers it matches up with. I just know that they told me that interest dosen't accrue until after settlement date when I went to give them my signature page and sign the margin agreement. Maybe they were wrong.

[TonyM]

Yeah, they reset your bp every day and would need to calculate your accrued interest to properly set the bp, heres the Margin Rules from the site. Easiest way though would probably just be to call the Branch Manager and ask, which is how I originally found out, anyway here is their disclosure statement if it helps:

Margin Disclosure Statement
Scottrade is furnishing this document to provide some basic facts about purchasing securities on margin, and to alert you to the risks involved with trading securities in a margin account. Before trading in a margin account, please review this statement and our margin agreement carefully and contact Scottrade regarding any questions you may have about your margin account.

When you purchase securities, you may pay for the securities in full or you may borrow part of the purchase price from Scottrade. If you choose to borrow funds from Scottrade, you will need to open a margin account. The securities purchased are the firm's collateral for the loan to you. If the securities in your account decline in value, so does the value of the collateral supporting your loan. As a result, Scottrade can take action, such as issue a margin call and/or sell securities in your account, in order to maintain the required equity in the account.

It is important that you fully understand the risks involved in trading securities on margin. These risks include, but are not limited to, the following:

You can lose more funds than you deposit in the margin account. 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 or other securities in your account.

Scottrade can force the sale of securities in your account. If the equity in your account falls below the maintenance margin requirements required under the law, or Scottrade's higher "house" requirements, Scottrade can sell the securities in your account to cover the margin deficiency. You also will be responsible for any shortfall in the account after such a sale.

Scottrade can sell your securities without contacting you. Some investors mistakenly believe that a firm must contact them for a margin call to be valid and that Scottrade cannot liquidate securities in their accounts to meet calls unless Scottrade has contacted them first. This is not the case. Scottrade will attempt to notify you of margin calls, but is not required to under the regulations or as stated in our margin agreement. Even if Scottrade has contacted a customer and provided a specific date by which the customer can meet a margin call, Scottrade can still take the necessary steps to protect the financial interests, including immediately selling any securities without notice to the customer.

You are not entitled to choose which security in your margin account is liquidated or sold to meet a margin call. Because the securities are collateral for the margin loan, Scottrade has the right to decide which security to sell in order to protect its interest.

Scottrade can increase its "house" maintenance margin requirements at any time and is not required to provide you with advance written notice. These changes at Scottrade can take effect immediately and may result in the issuance of a maintenance margin call. Your failure to satisfy the call may cause Scottrade to liquidate or sell securities in your account.

You are not entitled to an extension of time on a margin call. While an extension of time to meet margin requirements may be available to customers under certain conditions, a customer does not have a right to the extension.






***The Buying Power calculation is based on your current positions using yesterday's closing price. Maintenance Calls are re-calculated every night. If you had a maintenance call which you cleared, the prior Maintenance Call could re-appear after the nightly calculation.

[TonyM]

^ Check your comfirmed trades window next time you do a trade, settlement date will be in 3 business days. Funds are still instantly avaliable on a margin under 25k, but the funds/trades haven't technically settled. On the interest part, I'm not sure of, I've never kept track of settled vs non-settled days of trades and amount to compare to what they charge me for margin interest to see which set of numbers it matches up with. I just know that they told me that interest dosen't accrue until after settlement date when I went to give them my signature page and sign the margin agreement. Maybe they were wrong.

Ok, I see what you are saying now, I had to log into the main section of Scottrader...yes three day settlement even though funds are immediately available...I'll be watching today's trades to make sure I'm only billed for one day's worth of margin interest and post back once the info is available. I've done this before and it's always been charged only for the days held not including the settlement time, but I'll double check it.