Margin Lending Question

safvan · Jun 26, 2011

I have $5,000 in the equity brokerage account. I buy xyz stock for $10 for 500 shares and another 500 shares on margin and pay a total of $10,000. $5,000 being on margin.

Two days later the stock is trading for $15. The paper value of the trade is $15,000.

Question is can I borrow more from the brokerage based on the paper profits of $5,000? Assuming it is allowed then it should give me a buying opportunity to buy another $10,000 worth of shares (2:1 margin).

If this is correct one can basically borrow unlimited amount based on the value paper profits?

Thank you.

brettus · Jun 26, 2011

safvan said:
I have $5,000 in the equity brokerage account. I buy xyz stock for $10 for 500 shares and another 500 shares on margin and pay a total of $10,000. $5,000 being on margin.

Two days later the stock is trading for $15. The paper value of the trade is $15,000.

Question is can I borrow more from the brokerage based on the paper profits of $5,000? Assuming it is allowed then it should give me a buying opportunity to buy another $10,000 worth of shares (2:1 margin).

If this is correct one can basically borrow unlimited amount based on the value paper profits?

Thank you.

Should be able to. You can at some places anyway. You can even take money out, because you only need to cover the margin.

safvan · Jun 27, 2011

So technically this way provided the trade is in ones favor you could keep on adding positions in the same stock on your paper profits. Hypothetically if you are correct in a trade in a long term scenario say 1 year to 2 years, you could adding in thousands and even millions of shares just based on your paper profits.

So for a long term trader he or she does not really need a large capital amount. Just patience and luck to be in the right side of the trend.

That makes investing in long term scenarios quite simple. Doesn't it?

Rhody Trader · Jun 27, 2011

Actually, no you can't. One simple reason. You have no cash in your account. You used the cash to buy the shares, so it's tied up until you sell, which is why you cannot withdraw funds either.

safvan · Jun 27, 2011

With CFDs is it possible?

safvan · Jun 27, 2011

Rhody Trader said:
Actually, no you can't. One simple reason. You have no cash in your account. You used the cash to buy the shares, so it's tied up until you sell, which is why you cannot withdraw funds either.

Used cash plus margin to buy the shares. Full cash and full margin then developed paper profits which should technically increase the purchasing power in the account as long as the margin call is not hit, shouldn't it?

Rhody Trader · Jun 27, 2011

OK. I may have been wrong on the buying power thing. Looks like so long as you meet the 50% rule you should be good. You most definitely cannot withdraw any of your profits, though, since all the money is tied up in the position. There isn't any cash to withdraw.

CFDs are a completely different animal as I understand it. They are like futures where margin never leaves one's account. Thus, so long as you have the required margin deposit you can do whatever you like.

smellybelly · Jul 15, 2011

how does margin work exactly?

when i place a trade it says how much margin i need for it to place that trade, what is the margin a reserve/deposit?

and how do you use leverage in spread betting?

Margin Lending Question

safvan

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brettus

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safvan

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Rhody Trader

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safvan

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