Good Morning, I recently opened an account over at Webull because I wanted to start doing some mid and long term swing trading. I chose a margin account simply because I didn't want to have to wait 3-5 days for my cash to settle in my account after selling stocks. I understand with a margin account the funds are available to reinvest almost immediately after selling your stocks. This was important to me because I wanted the flexibility to get in and out of a stock quickly, without having my money tied up for several days at a time after each sale. However, I have no intention of ever borrowing any money. My plan is to only invest with the cash balance in my account. So for example, if I have $4,000 in the account, I will never spend more than $4,000 on the purchase of stocks. I also have no intention of ever doing any options trading, so the most I should ever be at risk of losing is 100% of my investment. I understand margin accounts require a minimum maintenance margin of equity (the sum of your cash and stock value in the account) in order to maintain the margin account. I think of this as a condition for the privelege of having a margin account which comes with the option of borrowing on margin--even though I never plan to actually borrow. This is fine, but what I don't understand is why my maintenance margin has increased so significantly. The maintenance margin on my $4,000 margin account used to be about half as much as it is today. I recently purchased 320 shares of OGI stock for a total cost of $1,014.05. However, when I look at my maintenance margin costs, I can see the maintenance margin for this one stock purchase is $918.40. That is a whopping 90.6% maintenance margin! This means if the stock value drops by more than 9.4%, even temporarily, then I'll have a maintenance margin in the account for that particular stock of more than the stock is worth. Just to recap: I completely understand the need for a maintenance margin. The part I don't understand is why my maintenance margin continues to increase overtime when I'm not even borrowing any money or using any margin. The only money I've invested with is my own cash, and I haven't even invested all of it yet. I need to understand how this works so I can better understand the risks. Is the maintenance margin amount unlimited? Could it grow to a point where I have a maintenance margin of $1,000,000 when I only ever invested $3,500 in stocks? Is the maximum maintenance margin 100% of the amount I invest in stock (i.e., a maintenance margin of $3,500 in a scenario where only $3,500 has been invested)? What is the maximum maintenance margin and how do they determine it needs to be 90.6% of the total investment versus 25% of the total investment? Sorry for all the questions. I tried finding satisfactory answers on Google and Youtube without success. Thanks in advance!
A margin account allows you to sell a stock and avoid T+2 settlement. You can buy something else immediately. You'll be charged margin interest only if you borrow money from your broker to buy more securities than cash in your account $4k in your example). If you are cash based, there is no initial margin nor is there a margin maintenance requirement (MMR). The broker is simply providing you those numbers to let you know what the MMR is, should you decide to utilize margin. Reg T sets initial margin as well as the MMR. Brokers can require more margin. Stocks price less than $5 are not marginable. Broker MMR varies but as an example, Schwab requires 50% margin for stocks >$3 and a maintenance of 40%. Below $3, initial margin and the MMR is 100%. My guess is that's what's happening with your OGI which trades for less than $2.50. At a price of $2.87, your position would be worth $918.40 which would then be the MMR. Any chance that OGI was $2.87 when you looked at this? As for the following: > This means if the stock value drops by more than 9.4%, even temporarily, then I'll have a maintenance margin in the account for that particular stock of more than the stock is worth. No, not correct. Hope that all of this makes sense.
I just refreshed the account information and checked it and the maintenance margin listed for OGI is still $918.40 shown in the "maintenance requirement" column. The per share price is fluctuating quite a bit and the market value is now $848. The main thing I'm trying to wrap my head around here is when exactly I'd be at risk for a "margin call," which I understand is when the broker can sell my stocks (at a loss) to bring my equity balance back up high enough to cover the maintenance margin amount. In other words, I want to ride out this market crash and wait for a recovery, because I'm still very confident my stock picks will be profitable in a 1-2 year time span, but I don't want the brokerage to sell my stocks for a loss because of the maintenance margin requirements. Am I correct that if the "maintenance margin" amount exceeds the "Net Account Value," then they can sell my stocks without my consent, even if I'm only trading with the cash balance in my margin account? I should add that I noticed this morning my maintenance margin amount was about $2,700, and my Net Account Value was about $3,200. I did not expect the maintenance margin to increase as it did, which is why I was concerned about it. Now the maintenance margin shown is only $2,086. I have no idea why it suddenly increased and then dropped again, which is also concerning because I did not buy or sell any stocks in the past 4 days.
Here's an explanation of standard Reg T margin (50% initial, 25% maintenance): If you were to go on full margin and buy $8k of a marginable stock with $4k, you would be borrowing $4k. If the maintenance margin requirement is 25% then the maintenance requirement would be 4/3 times the loan amount or $5,333.33. At that point your equity would be $1,333.33. Equity divided by loan is $1,333.33 divided by $4,000 or 25%. Below a market value of $5,333,33, you'd get a margin call. If you don't utilize margin borrowing, there can't be a margin call.
