Margin Requirements

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Margin Requirements

In this video Ross, from Warrior Trading talks about margin requirements when online active trading. There are two basic margin requirements - account minimums set by broker when opening an account and the minimum to maintain open positions when trading.

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Hey everyone. Ross here from Warrior Trading. I want to talk to you for a moment about margin requirements. There are two basic margin requirements. The first is the account minimums that are set by the broker, and the second is the minimum in order to maintain your open positions. When you set up your account, brokers will have an account minimum. Based on the PDT rules, and you can see my separate video on PDT rules, there is a $25,000 minimum account value for all US traders that are actively day trading, which means more than three times in a five-day rolling period. So, you have an account minimum of $25,000. If you fall below that, you will have a requirement to get your account back above $25,000 in order to keep day trading. Otherwise you'll be restricted to a cash-only account, which you don't want.

Once you have your account and you're above $25,000, you know that you have four times leverage during the day. So, if you have $25,000 that means you've got a $100,000 in buying power. That means during the day you could take a $78,000 position, let's just say. However, at night the margin is only two to one. If you come up to 350, 355 just before the market closes, if the market closes and you're still holding that position, you have a margin requirement to get your account up at least half the value of that position. So, if the position is 80,000, you need to have $40,000 cash in the account, and you'll have a margin call in order to get your account up to that value. Or, what will more often happen, is that the position will be liquidated, and if you end up losing on it, that's your fault because you didn't have enough margin in there to maintain the trade.

Now, in addition to having these margin requirements, you also, if you're using margin and holding stocks overnight on margin, you have to pay margin interest rates because you're effectively borrowing money from your broker. This is one of those areas where people who hold overnight on margin are betting that they'll make more than what they'll have to pay in interest. But you have to know what the interest rates are, so you understand what the breakeven points are, because during the day there's no interest when you're using the borrowed money, but if you hold them overnight, you do have to pay interest. All right? I hope this has helped answer some questions that you may have had about margin requirements. And as usual, if you have any questions, don't hesitate to reach out.

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