Future and option brokerage charges

The net value—the difference between the cash amount and the value of loan security — is initially equal to the amount of one's own cash used. Powered by WordPress Theme Designed by: Views Read Edit View history.

Retrieved from " https: This page was last edited on 11 Februaryat The margin interest rate is usually based on the broker's call. The probability of losing future and option brokerage charges entire capital at some point would be high. If the investor fails to bring the account back into line, the broker can sell the investor's collateral securities to bring the account back into line.

This situation most frequently happens future and option brokerage charges a result of an adverse change in the market value of the leveraged asset or contract. Your email address will not be published. By contrast, if the margin-equity ratio is so low future and option brokerage charges to make the trader's capital equal to the value of the futures contract itself, then they would not profit from the inherent leverage implicit in futures trading. This difference has to stay above a minimum margin requirementthe purpose of which is to protect the broker against a rise in the value of the borrowed securities to the point that the investor can no longer cover the loan. In the s, margin requirements were loose.

You may use these HTML tags and attributes: If a margin call occurs unexpectedly, it can cause a domino effect of selling which will lead to other margin calls and so forth, effectively crashing an asset class or group of asset classes. The typical peak rates on brokers' loans were 40—50 percent. For stock price P the stock equity will be in future and option brokerage charges example 1, P.

So the maintenance margin requirement uses the variables above to form future and option brokerage charges ratio that investors have to abide by in order to keep the account active. By using this site, you agree to the Terms of Use and Privacy Policy. The minimum margin requirementsometimes called the maintenance margin requirementis the ratio set for:. This was one of the major contributing factors which led to the Stock Market Crash ofwhich in turn contributed to the Great Depression.