Please Help a Dummy Understand Margin & Maybe A Few Other Things...

zghorner

Newbie
3 0
please help me understand buying stock on margin...

Stock "X" is $100 per share. I buy 10 shares using margin (which has an interest rate of 8%) for $1000. Meaning I now owe the broker $80 to be paid back I'm guessing when the stock sells?

So, as a day trader, my total investment would need to swing upward more than $85 (including transaction fee) in order to make any money at all on the trade?

I know in order to be a PDT you must have a minimum of $25k in your account, and really you need a lot more due to free ride regulations (that also sucks). So say I have $30k cash in my account (not using margin). I can only buy and sell $5k worth of stock before I have to wait the 3 business days for funds to settle?

Ive gotten to where I am by not taking loans and by not using credit cards so that margin interest rate of 8%, if I am understanding it correctly, is garbage. Ive been paper trading, making $50 here, $75 there...thinking I'm doing good and damned if that aint even enough to cover my interest rate.

Ive been researching constantly and am a little confused...I feel like ive missed something. I really appreciate any clarification you can provide.
 

timsk

Legendary member
7,072 1,866
. . . Ive been researching constantly and am a little confused...I feel like ive missed something. I really appreciate any clarification you can provide.
Hi zghorner,
Welcome to T2W.

Who's your broker and can you provide a link to the relevant page of their website that says you'll be charged 8% interest - as I suspect you've misunderstood what interest is paid and when. It's a good few years since I day traded U.S. equities but, if my memory serves me correctly, it was really only the round trip commissions - and spread - that impacted my PnL.
Tim.
 

new_trader

Legendary member
6,230 1,281
Margin interest is the ANNUAL rate but it is calculated and added daily.

The general rule is:

(Interest Rate/365 Days)*(Amount Being Borrowed)*(Number of Days Borrowing Funds)
 

gerryg

Established member
900 6
please help me understand buying stock on margin...

Stock "X" is $100 per share. I buy 10 shares using margin (which has an interest rate of 8%) for $1000. Meaning I now owe the broker $80 to be paid back I'm guessing when the stock sells?

So, as a day trader, my total investment would need to swing upward more than $85 (including transaction fee) in order to make any money at all on the trade?

I know in order to be a PDT you must have a minimum of $25k in your account, and really you need a lot more due to free ride regulations (that also sucks). So say I have $30k cash in my account (not using margin). I can only buy and sell $5k worth of stock before I have to wait the 3 business days for funds to settle?

Ive gotten to where I am by not taking loans and by not using credit cards so that margin interest rate of 8%, if I am understanding it correctly, is garbage. Ive been paper trading, making $50 here, $75 there...thinking I'm doing good and damned if that aint even enough to cover my interest rate.

Ive been researching constantly and am a little confused...I feel like ive missed something. I really appreciate any clarification you can provide.

8% for a trading day or for a year? Brokers reserve a right to set % what they think reasonable but generally they have to use interest rate set by CB of the currency, using current interbank LIBOR rate etc..
But guess you just misunderstood how its charged 8/365% is the actual percent charged...
 

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