02 Margin and Short Sale

# 02 Margin and Short Sale - Trading on the Margin and...

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Trading on the Margin and Selling Short Professor Alexander Barinov Terry College of Business University of Georgia FINA 4310 Survey of Investments Alexander Barinov (Terry College) Margin and Short Sales FINA 4310 Investments 1 / 14

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Outline 1 Trading on the Margin 2 Short Sales 3 How to Play It Alexander Barinov (Terry College) Margin and Short Sales FINA 4310 Investments 2 / 14
Trading on the Margin Deﬁnitions If you borrow your broker’s money to buy shares, you buy on the margin Margin - the percentage of your own money in your purchase If you put down \$300,000, borrow \$200,000 and buy the shares, the margin is 300 , 000 300 , 000 + 200 , 000 = 0 . 6 The Fed requires the starting margin to be at least 0.5 (same about the Stocktrak) Alexander Barinov (Terry College) Margin and Short Sales FINA 4310 Investments 3 / 14

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Trading on the Margin Deﬁnitions Maintenance margin - the minimum margin the broker would let you have Margin call - you have to close the position or give the broker more cash if the stock price drops and your margin goes below the maintenance margin Alexander Barinov (Terry College) Margin and Short Sales FINA 4310 Investments 4 / 14
Trading on the Margin Trading on the Margin: Example You buy 50,000 shares at \$10 per share and put down \$300,000 Your margin is 300 , 000 10 × 50 , 000 = 0 . 6 If the maintenance margin is 0.4, how low the

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02 Margin and Short Sale - Trading on the Margin and...

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