Trading With Margin - How I Do It

Trading With Margin - How I Do It
To get the transcript and MP3, go to: https://www.rockwelltrading.com/coffee-with-markus/trading-with-margin/

Intro: 0:00
What Is Margin?: 0:21
How To Open A Margin Account: 1:08
What Is Buying Power?: 2:04
Portfolio Margin 7:36

What Is Margin?

When opening a trading account, you can open a CASH or a MARGIN account.

With a cash account, if you put $10,000 into the cash account, you have $10,000 in buying power.

Now, when you have a margin account when you put in $10,000 in cash, the broker will actually lend you another $10,000 giving you $20,000 in buying power.

How To Open A Margin Account?

So with tastyworks, which is what I use, If you want to open an account, it asks what kind of account do you want to open? Is it an individual account, an entity, a trust, or a joint account?

And do you want to open a margin, cash, or retirement account?

In a cash or retirement account, the broker does not lend you money, but when you use a margin account, you're getting a 2:1 buying power.

What Is Buying Power?
- Buying power for options is always non-leveraged. So if you put $10,000 in cash, even in a margin account, it means that you have $10,000 in buying power for options.
- Buying power for stocks is leveraged. So $10,000 in cash will give you $20,000 in buying power.
- Portfolio margin

Buying Power For Stocks VS Options
AAPL Example:
What happens if you want to sell, let's say you want to trade the Wheel.
- If you're selling puts, you might be forced to buy Apple at 125 & for each option you have to buy 100 shares of Apple at $125 if assigned, so you would have to bring $12,500 to the table, right?

When you're selling options, the broker is already giving you a discount. The buying power that will be reduced from your options is $2,202. So as you can see, if you are buying Apple at 125, you would have to bring $12,500 to the table, but here the broker is only charging you $2,202.

On a $10,000 account, you could sell 4 of these options. So we see that the broker will charge you $8,795. So on a $10,000 account, at first it seems that you have enough margin for this. Wrong. Don't do that.

Doing it that way would be irresponsible.

On a $10,000 account you're getting $20,000 in buying power. So if you're selling one option, and you would get assigned, then you would have to buy stocks for $12,500 and only have $7,500 left, this is why you only sell one option, and even though your broker will only charge you $2,205.

This is the right way to do this because you're not over-leveraging yourself.

What if you DID sell 4 options and got assigned? You would have to bring to the table 4 times $12,500, so this is $50,000, but you only have $20,000 in buying power.

You are $30,000 short & this $30K becomes a so-called margin call.

A margin call means that right now you have to wire the broker $30,000

Portfolio Margin.

You are getting a 5:1 leverage, or some brokers even offer a 6:1 leverage, instead of 2:1.

I personally use this "excess buying power" when things go wrong when I need to save a trade that is in trouble.

Recommended links and videos:
Markus’ Plan: https://rockwelltrading.com/myplan
Wheel Playlist: https://www.youtube.com/playlist?list=PLBa3sAx-Io2mybLLdWtbjTFqK9-BR5SJb
tastyworks: http://rockwelltrading.com/tastyworks
Best Brokerage Account 2020: https://youtu.be/4MoU-UiDAi4

#MarginTrading #MarginAccount #StockMarket
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Видео Trading With Margin - How I Do It канала Markus Heitkoetter