馃攳
Trading with Margin Accounts - YouTube
Channel: unknown
[1]
[Music]
[7]
a margin account has more features than
[9]
a cash account
[10]
and they're used by more active or
[12]
experienced investors
[14]
a key difference between a cash account
[16]
and a margin account is that with a
[17]
margin
[18]
you can borrow funds to buy investments
[20]
whereas with a cash
[22]
you must pay for all purchases by the
[24]
settlement date
[25]
and because of this a margin account is
[27]
an account you'll apply to
[29]
and be approved for just like a loan or
[31]
any other type of credit
[33]
think of a margin account like a home
[35]
equity line of credit or a heloc
[37]
homeowners who have a heloc use the
[39]
value of their home as collateral or
[41]
leverage
[42]
to give them a line of credit they can
[44]
then use that line of credit for
[46]
whatever they like
[47]
like home renovations or a trip
[49]
typically
[50]
a heloc will allow you to borrow up to
[52]
65
[53]
of the market value of a home with a
[55]
margin account
[56]
investors use their investments as
[58]
collateral
[59]
if they go to buy stock they would pay
[62]
up to at least 30 percent of the cost
[64]
and the broker would lend the remaining
[66]
70
[67]
depending on the value of the investment
[69]
they're looking to buy
[71]
like a heloc the investor must pay
[73]
interest on the loan
[75]
also it's important to note that using a
[77]
margin is completely optional
[79]
you can have a margin account and never
[81]
end up using any margin
[83]
if you choose to pay for all of your
[85]
investments with your own money
[86]
the choice is completely up to you let's
[88]
look at how borrowing would work
[90]
if you intend to buy five thousand
[92]
dollars of a stock
[94]
that has a margin rate of thirty percent
[96]
you could put down as little as fifteen
[98]
hundred dollars
[99]
plus commissions and borrow up to thirty
[102]
five hundred dollars
[103]
this is called leverage leverage may
[106]
amplify the returns you make on your
[108]
money invested
[109]
on the other hand it could also amplify
[112]
your losses
[113]
for example if you use fifteen hundred
[115]
dollars of your own cash
[117]
to buy fifteen hundred dollars a stock
[119]
you'll make five percent on your
[121]
investment
[122]
if the stock moves up five percent in
[124]
this case
[125]
that would be seventy five dollars but
[128]
if you bought five
[129]
thousand dollars worth of stock with
[131]
fifteen hundred dollars of your own cash
[133]
and a stock moves up five percent what
[135]
happens
[137]
the five thousand dollars invested is
[139]
now worth five thousand two hundred and
[141]
fifty dollars
[142]
this means you've made two hundred and
[144]
fifty dollars on your cash investment of
[146]
fifteen hundred dollars
[148]
this would be a return of sixteen point
[150]
six percent on your capital
[152]
before deducting any amount paid for
[154]
interest
[155]
the opposite would be true if the stock
[157]
went down five percent
[160]
this is where the similarities between a
[162]
margin account and a heloc end
[165]
they differ when it comes to how often
[167]
the loan amount changes in value
[169]
with a heloc if the value of your house
[171]
goes up or
[172]
down the value of the house used for the
[174]
loan tends to be less frequently
[176]
reassessed
[177]
with a margin account your investments
[179]
are always changing in value
[181]
so the amount you can borrow can change
[183]
daily at a minimum
[186]
you should know that the amount you can
[188]
borrow on margin is not unlimited
[190]
in fact there are maximum caps you can
[193]
borrow for specific
[194]
investments for example a stock with a
[198]
30
[198]
margin rate has a 1.5 million dollar
[202]
maximum loan value
[204]
this means that the most cd direct
[206]
investing can lend
[207]
is 1.5 million dollars
[210]
this is the equivalent of buying 2.14
[213]
million dollars of stock
[215]
and receiving a loan of 1.5 million
[217]
dollars
[218]
at 70 this is probably a scenario that
[222]
few will run into but there are stocks
[224]
that could have smaller limits
[226]
for example stocks with a 75
[229]
margin requirement and a 25 loan value
[232]
can only have a loan value of 100 000
[236]
if what you buy costs more than the
[238]
maximum loan value
[239]
you can you just have to cover the
[242]
outstanding cost with your own cash
[244]
that's sitting in the account
[246]
the maximum cap amount that a broker
[248]
will lend you is called concentration
[250]
guidelines
[251]
and you can read more about that and
[253]
other margin requirement details on our
[254]
website
[259]
any available margin you have is called
[261]
margin excess
[262]
this usually means you have more
[264]
borrowing funds available
[265]
against your current investments that
[267]
you can put towards buying more
[269]
investments
[270]
but if your available margin excess
[272]
drops down and it's in the red
[274]
you're in something called a margin call
[277]
if this happens you need to deposit
[279]
funds into your account
[281]
or liquidate some investments to bring
[283]
your margin back into green
[285]
waiting too long might impact the
[286]
ability for you to continue to hold your
[288]
investments
[290]
many investors who use most of their
[292]
available margin
[293]
will monitor their accounts closely to
[295]
try and prevent falling into a margin
[297]
call
[298]
if you're tempted to use all or most of
[300]
the available margin
[302]
think about if you're providing yourself
[303]
with enough room to allow your account
[305]
to fluctuate in value
[307]
for example if you use all your margin
[310]
to buy stocks today
[312]
and over the next three days those
[314]
investments go down 10
[316]
you'll be in a margin call you'll need
[318]
to either sell at a loss
[319]
or deposit funds to cover that shortfall
[323]
if you had left some buffer room to
[324]
allow your portfolio to fluctuate
[326]
you may not have fallen into the margin
[328]
call we'll go over this in more detail
[330]
in our margin calculations video
[332]
you can now see how a margin account is
[334]
different than a cash account
[336]
another key difference is that more
[338]
advanced trading strategies
[340]
and investment types are available with
[342]
a margin account
[343]
whereas a cash account has some
[345]
limitations
[347]
for example a margin account lets you
[349]
trade options
[350]
and short these are strategies we'll
[353]
explore in other videos
[355]
now that you understand how a margin
[356]
account works we'll delve a little
[358]
deeper
[359]
in our next video we learn how to do
[361]
simple margin calculations
[363]
so you're ready to take on your first
[364]
margin trade
[366]
[Music]
Most Recent Videos:
You can go back to the homepage right here: Homepage