A margin account is an account in which u are allowed to borrow usually close to half the amount of your account. So, in my margin account, i could afford to buy the 860 shares cash, but i margined about 20% more and bought 200 more shares. In essence, you’re taking a loan out from the broker, usually at like 8% APR, or so, and allowed to use it on the fly for stock purchases. I’ve been throwing more and more margin in the lower this gets, with just the click of a button.
For some reason, when your margin account is opened, you no longer need to wait 3 days to use the same money. For Ameritrade, u can do 4 actual daytrades in any 5 day period, with a margin account. Which is pretty cool. If you make a bad investment and pull out your money on the same day, it just counts as a daytrade, and you can reinvest that money immediately. When I opened my account, i would use all the 4 daytrades in one day, to get a feel for daytrading, then wait 5 days until the counter got reset. For all other purposes, and to not have any daytrades, you can sell your position the day AFTER you bought it, and use the money again immediately.
Now, in Ameritrades case, they tell you that you have double the buying power (amount of “money” to invest in stocks) but i could never seem to put anywhere CLOSE to my maximum margin in. That would have been bad anyway, since if the stock goes down, you lose that much more money. I always play it safe and margin just 10-20%.
In my situation, 100% of my cash, plus 20% margin, when the stock goes down, my account loses value of course due to my holdings, but i actually lose more money because i was overdrawn. If you sell a margined holding for a loss, you lose more than you would normally. So at 1000 shares, if the stock drops a dollar, at 20% margin, im out $200 of money i never even had. So i haven’t sold yet. haha.
Daytrading is basically a margin account, with 4:1 ratio of “buying power” and you can trade all day, every day, as much as you want.
