About the Broker Webstation
/ WSE MARGIN ACCOUNT
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A margin
account allows you to use your securities as collateral
for the purchase of more securities or even for a personal loan
(using personal checks). You can use a marginal account to increase
earning potential in a bull market or as a short term loan in
a bear market. Although you do pay margin interest for this
privilege, it is lower than many major credit cards.
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Frequently
Asked Questions on Margin
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Why have
a Margin Account?
What is the difference
between a margin and a cash account?
What is an example
of a Margin Account?
What will it cost
me?
Is there a risk and
is it worth it?
How do I open a margin
account?
What are the requirements for a margin trade?
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Why
have a Margin Account?
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Borrowing
on margin allows you to extend your Broker Webstation
account, using your securities as collateral for this loan.
With this loan you can:
- Purchase
Additional Securities:
This
is the most common use of a margin account.
- Increase
Profit Potential: With a margin account you are
entitled to all the dividends paid even if the stock is
on margin.
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What
is the difference between a margin and cash
account?
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With a margin
account, you do not need one hundred percent of the purchase
price deposited in your account in order to purchase a stock.
Stock that you already own can be used a collateral to purchase
additional stock or even for a personal loan. In a cash account
you can only purchase securities with cash from your account
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What
is an example of a margin account?
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| For example
lets say you bought one hundred shares of xyz stock for $5,000
in a cash account. In a margin account you could buy another
$5,000 of xyz stock giving you a grand total of $10,000 of xyx
stock ($5,000 on margin) even if you only have $5,000 in your
account.
Suppose that you had
5,000 to invest and picked a stock selling for $50 that you
thought was going up. Under a 50% margin rule you can buy
200 shares of the stock as opposed to just 100 shared, with
your $5,000 *. If the stock goes up five points, you make
$1,000 instead of $500. If the stock goes down you would receive
a margin call.
* This does
not include any taxes, commissions, or margin interest which
may be due.
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What
will it cost me?
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Margin
Lending Rates vary based on the current Federal Reserve Broker
Call Rate. Rates also vary depending on the size and the volume
of the account. Please consult us for current rates and further
details.
E-mail:info@brokerwebstation.com
Telephone: 305-668-0867
Fax: 305-668-7956
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Is
there risk and is it worth it?
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| As with any
borrowing there is always risk. If the securities which are
held as collateral fall in price below certain percentage you
will receive a margin call. This means you must make a deposit
to increase your collateral. Always use conservative estimates
when investing in margin securities and always take into account
possible market fluctuations.
The interest rate
is often comparable to, if not lower than, the prime interest
rate -- the rate offered by banks to their best business customers.
Gains in your securities can pay this interest.
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How
do I open a margin account?
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First,
request a new
account application and make sure you specify
that you want the ability to trade on margin or contact
us.
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What are the requirements for a margin trade?
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| This table outlines
the different requirements for trading on margin based upon the type of trade:
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Priced above $4
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50% x M.V. (Market Value)
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35% x M.V.
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Priced at $3.99 or below
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100% x M.V.
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100% x M.V.
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Priced at $5 or over
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50% x M.V.
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Greater of $5 per share or 35% x M.V.
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Priced below $5
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Cannot be sold short
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$5 per share
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Shorts vs. box
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NA
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5% x M.V.
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Convertibles
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50% x M.V.
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35% x M.V.
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Corporates//Municipals
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Greater of 25% x M.V. or 20% x face value
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Same as initial
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U.S. Governments
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Greater of 10% x M.V. or 3% x face
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Same as initial
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Covered Options
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The sale of a call cannot be in the cash account unless
the underlying security is long in the account prior to the sale
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Naked Equity Options
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Puts
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The greater of 25% of the underlying security,
less any out of the money,
plus the premium or 15% of the strike price plus the premium
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Same as initial
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Calls
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The greater of 25% of the underlying security,
less any out of the money, plus the premium or,
15% of the underlying security price plus the premium
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Same as initial
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(Must be done in margin account)
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Spreads
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100% of debit an minimum equity of $2000
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Same as initial
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Bull Spread (Debit Spread)
(Must be done in margin account)
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Lesser of uncovered requirement as above, or difference in strike price
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Bear Spread (Credit Spread)
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European style calendar spreads are not permitted
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Naked index options
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Puts
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The greater of 25% of the underlying index,
less any out of the money, plus the premium or 15%
of the underlying strike, plus the premium
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Same as initial
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Calls
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The greater of 25% of the underlying index,
less any out of the money, plus the premium or 15%
of the underlying index, plus the premium
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Same as initial
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For more information on Options Trading and Risk, please see the
Characteristics and Risks of Standardized Options
from
The Options Clearing Corporation
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