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MARGIN ACCOUNT TRANSACTIONS
When you use a margin account, you are borrowing money from a
brokerage firm. When purchasing securities on margin you use a
combination of your own funds and the funds you borrowed from the
brokerage firm. These securities are the firm’s collateral for the loan. When
the securities in your account decline in value, so does the value of
the collateral supporting your loan. If the value of the securities
declines substantially, the brokerage firm will take action to shore up
the value of the account by issuing a margin call. Whether or not your firm chooses to issue a margin call, the firm has
the right to liquidate securities in your account in order to meet its
equity requirements for customer margin accounts. Should your firm actually issue a margin call, it may give you a very limited time to satisfy the call. This time may be decreased from the amount of time that a firm may normally allow, in the event the markets are experiencing unusually volatile conditions. This information pertains to the most common use of a margin account,
i.e., purchasing securities on margin. Investors who sell securities
short, which is also a margin transaction, should check with their firms
to fully understand the impact that changes in market value have on
their account.
Make sure that you fully understand how a margin account works. If
you don't, limit your investments to a cash account where you must pay
for the securities in full. Cash accounts are not subject to margin
calls. Know your firm's margin policies. Speak with your broker or check the
firm's Web Site for any changes in margin policies. Firms can make
changes at their discretion, and are more likely to do so in volatile
markets. If you use a margin account, make sure you don't use all of your
available funds to trade securities in the margin account. You should retain a ready reserve of easily accessible cash (for
example in a checking or savings account) so that you can promptly meet
a margin call. Manage your margin account. If you see that the securities in your
margin account are declining in value, deposit additional funds in your
account. These cash deposits will reduce your loan and lessen your
chances of a margin call, as long as the value of the securities in your
account do not continue to decline or you don't use the money to engage
in even more securities transactions. To
learn more, call
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