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How do I maintain an adequate margin balance?

Clients are responsible for maintaining a positive margin balance at all times. TD Direct Investing reserves the right to take any action, at any time, without notice to protect our interests, as outlined in the Margin Disclosure Agreement.

Examples:

Long Stock

Short Stock

Purchase 1,000 shares of a stock with margin rate of 50% at $50. The margin requirement would be:

1,000 share x $50 x 50% margin rate = $25,000

This amount must be in the account before a purchase order is placed. Since 50% is the margin requirement, TD Direct Investing is lending the account holder 50% of the trade value.

Maximum loan value is -1,000 shares x $50 x 50% = $25,000

Short sell 500 shares of a 30% marginable stock priced at $10.00. The margin requirement to accept the trade is calculated the same as if you were purchasing the stock: 500 shares x $10.00 x 30% = $1,500.

The total margin requirement to hold the position includes 100% of the proceeds of the short sell and is calculated as follows:

500 share x 10.00 x 130% = $6,500.

Scenario one

The market value of the stock increases to $60.

The maximum loan value is now: 1,000 shares x $60 x 50% = $30,000

Since the loan balance is $25,000 the account now has available margin of $5,000 which gives the account holder additional purchasing power.

Original Cost: 1,000 x $50

$50,000

Less: Revised loan value 1,000 x $60 x 50%

$30,000

Margin Requirement

$20,000

Less: Original Margin

$25,000

Available Margin

$5,000

 

Scenario one

The market value of the stock increases to $20.

The total margin requirement of the short position is:

Original short: 500 shares x 10.00

$5,000

Plus 500 shares x $10 x 30%

$1,500

Initial Margin Requirement

$6,500

Revised Market Value: 500 shares x $20

$10,000

Plus 500 shares x $20 x 30%

$3,000

Revised Margin Requirement

$13,000

Less: Initial Margin Requirement

$6,500

Equals = Outstanding Margin requirement of:

$6,500

The account would need a deposit of cash or margin-eligible securities the same day or as otherwise directed by TD Direct Investing.

Scenario two

The market value of the stock decreases to $40

The maximum loan value is now:

1,000 shares x $40 x 50% = $20,000

Since the loan balance is $25,000 the account now has a margin requirement of $5,000 which must be immediately resolved.

Original Cost: 1,000 x $50

$50,000

Less: Revised loan value 1,000 x $40 x 50%

$20,000

Margin Requirement

$30,000

Less: Original Margin

$25,000

Outstanding Margin Requirement

$5,000

The account requires a deposit of cash or margin-eligible securities by close of business that same day.

Maintenance: For every dollar the stock decreases, in this example the client would have to put up an additional $0.50/share in margin.

Scenario Two

The market value of the stock decreases to $5.

The total margin requirement of the short position is:

Original short: 500 shares x 10.00

$5,000

Plus: 500 shares x $10 x 30%

$1,500

Initial Margin Requirement

$6,500

Revised Market Value: 500 shares x $5

$2,500

Plus: 500 shares x $5 x 30%

$750

Revised Margin Requirement

$3,250

Less: Initial Margin Requirement

$6,500

Available Margin

$3,250

This available margin is available for additional trading.

Maintenance: For every dollar the stock increases, in this example, the client would have to put up an additional $1.30/share in margin.

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