Margins

[blackdiamond]

Could someone explain what a margin does exactly.

I transferred money into my brokerage account and it currently shows the money as a margin with a percentage available under non-margin.

I would like to invest the funds but wanted to make sure it was available for investments, I understand I can take out a loan using margins but I am unclear why money I transfer into my account gets put into the margin bucket.

Thanks.

[rovo]

Each broker has different nomenclature for the pools of money. Which broker are you using?

[blackdiamond]

Schwab

[rovo]

Just a guess on my part but I think they have credited your account with the funds but the funds have not cleared yet.

I think Yclept uses Schwab and maybe he can post something.

[yclept]

Nope, I use Scott. Scott reports as follows:


Buying Power: Marginable Investments
This is the total one could buy by using full margin potential of investments owned plus cash on hand. It will vary somewhat depending upon the margin requirements of whatever you are buying (assuming the purchase is putting you into margin).

  Buying Power: Non-Marginable Investments
This is the total one could buy of stocks that cannot be margined. It includes your cash on hand plus margin available for any stocks already owned.

  Cash Available for Withdrawal Without Margin Loan*
Pretty much what it says. It's what you could withdraw while leaving no margin on any owned assets.

  Total Cash Balance
For me this is almost always the same as the above classification, but then, I've not been in margin (except for short positions) for a long time. I don't really remember how it changes as one gets into margin situations.

It sounds like you are new to investing. My advice is to leave margin alone. It's nice to have the account set up as margin so one can take on short positions, but even with your shorts, I think you would be well advised to be sure you are always cash covered. I suggest investing only with the cash you have deposited in the account for now. When you are ready to take on margined positions (if ever), you won't need to be asking people on a message board what it's about.

The only long margin I've used in the last many years has been when I've sold a position, I'm fully invested, and I have something else I want to buy immediately with the proceeds of the sale (which are not going to clear for a few days). I will buy the new position using margin, knowing that within a few days the margin will be covered by proceeds of the investment I just sold.

[rovo]

Another thought. Did you (the OP) request for the funds to be placed anywhere in a money market account? My funds, cash, gets swept into a money market account but if I did not specify this, then it would just sit in the margin account.

[yclept]

I transferred money into my brokerage account and it currently shows the money as a margin with a percentage available under non-margin.

The number that matches the amount you deposited is your real cash position. The other number should be higher and represents that amount of a normal marginable stock you could buy.

I would like to invest the funds but wanted to make sure it was available for investments, I understand I can take out a loan using margins but I am unclear why money I transfer into my account gets put into the margin bucket.

A margin account is a margin account, so the broker assumes you might want to take full advantage of the margin available and reports same. If you never use the margin available, there is no difference between a margin account and a cash account.

[blackdiamond]

Thank you for all the responses. I just want to use the money I transferred to buy funds. My concern was in figuring out whether it was available for investment or if there was some type of hold on it.

[2kids10horses]

I'd call the broker and ask. I bet you could go ahead and invest, but call to make sure. I'm speculating that they put your funds in "limbo" until the check has cleared, and are calling it margin.

I've had magin "issues" when I've sold something, and immediately want to reinvest. Technically, there's a 3 day "settlement period", but if you have a margin account, the broker knows you're gonna have the funds to pay for the new stock when the old stock sale closes, so they let you do it, and technically, you're using margin to do it.

I use etrade, and what I've found useful is to enter in "Contingent" trades. My style is to trade the long and short index ETFs. Let's say I'm long, and I want to go short. I'll set up a contingent trade: I'll sell my long position, and have the successful trade trigger my purchase of the short ETF. This works perfectly for me.

I place my trades overnight, and they get executed at the open. If I enter my trades as individual trades, the system sees my "Buy" order, and rejects it because at that time, because I still own shares. It doesn't recognise that I've already issued a "Sell" order that will liquidate the shares prior to my Buy order. Using the Contingent order (Trade A triggers Trade B) solves that little problem.

When I first started at etrade and had that problem, I called and spoke to someone. He rattled off all kinds of "margin policies", yada, yada, yada. Not helpful. I knew there had to be a way to do it, and I searched around and found the Contingent Order fit the bill.