Margin Accounts
Chapters in this video
- 0:00 What opening a margin account really means for the customer
- 1:05 Mandatory credit and hypothecation agreements versus optional loan consent
- 2:23 Margin risk disclosure: liquidation without notice
- 3:17 Who sets initial margin, who sets maintenance, and the $2,000 floor trap
- 4:02 Short stock maintenance tiers and cheap-stock punishment
- 4:41 The margin call sequence from drop to liquidation
- 5:26 Rehypothecation and the 140% debit balance cap
- 6:09 SMA mechanics and why it can never go negative
- 6:43 Securities you cannot buy on margin, then exempt and debt tiers
- 7:56 Rapid-fire exam recap
What this video covers
- The three parts of a margin agreement, and why the loan consent agreement is the only optional piece while credit and hypothecation are mandatory
- What the margin risk disclosure statement warns about, specifically the firm's right to liquidate without contacting the customer first and the customer's inability to choose which securities are sold
- Who sets initial margin versus maintenance margin, and the exact 50% initial, 25% long maintenance, and $2,000 equity floor numbers
- How FINRA's maintenance requirements punish short positions differently, with the $5/share or 30% rule at $5 and above versus the $2.50/share or 100% rule below $5
- The four-step sequence from equity dropping below maintenance through margin call to liquidation, and why the firm needs no grace period or notice
- How rehypothecation works and why the 140% of debit balance cap matters for the exam
- Why a Special Memorandum account (SMA) can never be negative, and which securities are flatly prohibited from margin purchase
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