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Ok ,what other securities does the broker manipulate the margin requirements?

.I have found that some brokers demand 100% maintainence for warrents.which are sort of a long lived option,even though these trade like stocks ;some on the NYSE as well.I have also encountered brokers who seem to state that in the rules but in practice extend the same terms as a  stock of the same price(ie if the warrent is over $5 30% maintainence).

This is important to know because what is the advantage of buying a warrent if it costs more to hold than the underlying stock?.Take IPSU.

With the stock@30$ the maintainence requirement (assuming%30)would be 9000$.The ipsuw warrent trades at $9.5.unless you can buy this on margin it seems like a sucker bet since stock has so many advantages(including a hefty dividend in this case).You will encounter this problem a lot if you trade low priced stocks.

For example if you trade at a broker who requires 100% maintainence for stocks under $5.That means it’s cheaper to own a $10 stock($3000 mainainence)than a $4 stock($4000 maintanence).

These examples clearly show you need to be sure of the prospective brokers policy for the respective securities you plan on buying.It’s not fun when a stock in your account goes from$ 5.02 ($1500 maintainence@30%)to $4.99 ($5000maintainence)at the close and now you need to cough up this difference for a margin call,or at the least have less money for other investments.

You may not think that these type of things could affect you but market tend to move in unexpected ways,and if you know this stuff hopefully you won’t be put in a position where you are called out of a position because of a rule you didn’t know about or understand.

Know your options

Do brokers have different margin requirements for options?.I think your catching on now!.Yup.

All broker charge 100% initial and maintainence for long calls and long puts.There are all kind of esoteric “legged” option strategies with names like “butterfly” “straddle” etc.

There are minimum requirements for these combination  positions that brokers often embellish with additional percentages that will suck margin out of your account.

These are stated as a formula in the margin rules page on the brokers website.Some brokers don’t even post these (too busy touting $10 option trades)That”s not right.

What usually goes on is they ad a quick 5% here and there to the formula to suck out some of your buying power.

It’s interesting reading these  rules because it seems that firms try to “steer you” to or away from various types of investments by these differences in policies.

Anyway you will notice that some brokers charge more  margin for short calls than short puts.

You will also find that they vary as to the account size you need to “qualify” for these type of trades.

Some add additional fees for combo trades.One problem I ran into selling(shorting)puts is premature assignments.

Hey ,the buyer of that option has the right to demand an assignment any time they want until expiration(if in the money).Most brokers charge an assignment fee on both options that you request assignment or that are assigned to you.You have no control over a stock put to you or called from you.


While I am on my soapbox ,a few comments on record keeping and something that is the main reason I switched brokers so often.

Barrons magazine in it’s broker survey articles has decried the atrocious lack of record keeping provided by the discount brokers.All of the innovations seem to be directed at one thing; more trading=commissions.

When its tax time the old pen and paper was good enough for pa and good enough for you.One broker I did business with had  so little regard for the customer they changed the size and page format of the monthly statement 3 times in a year so it could not be  stored neatly in a ring binder.

Hours and hours looking up basis to complete tax statement.My accountant mentioned how easily the brokers could provide closing positions for the tax  year on the statements,but don’t .

What about schedule D’s?.preparing them can be tedious and expensive.That’s bad enough,but online is worse.Brokers are required to keep 3 yrs of customer records.

Do they make these histories available on line?.Not required to..not gonna do it(why paper is king). One broker has cut back online records from 2 yrs to 18 months.Why bother maintaining them ?they already got that money.Most but not all(see current issue 2/18/06 Barrons) are now supporting tax prep software ,some give it away in promotions.

But be aware these databases frequently do not work smoothly and need to be manually tinkered(read ;sort through mountains of paper statements) with because there is no standard format that all the brokers databases use.Don’t be tardy downloading your records cause data will only be online limited time.

On the trading platform; Do they show you the basis(cost) of the positions in the account? believe it or not many don’t!,If they do, they frequently can’t cope or adjust for such things as option symbol changes(these happen frequently),stock splits or symbol changes ,spinoffs etc.

Your account position page rapidly degenerates to garbage information.

Many system require the customer to manually fix this.some require you to pester the broker to do it; some have no way to do it at all.

So Yup! get out the old yellow pad and keep it there right on top of your monitor.Do they show you the days change in account value?Some do ,some don’t.Kind of helps to know if your losing or gaining!!!