Trading With Margin - How I Do It

Trading With Margin - How I Do It

Intro: 0:00
What Is Margin?: 0:21
How To Open A Margin Account: 1:08
What Is Buying Power?: 2:04
Portfolio Margin 7:36

What Is Margin?

When opening a trading account, you can open a CASH or a MARGIN account.

With a cash account, if you put $10,000 into the cash account, you have $10,000 in buying power.

Now, when you have a margin account when you put in $10,000 in cash, the broker will actually lend you another $10,000 giving you $20,000 in buying power.

How To Open A Margin Account?

So with tastyworks, which is what I use, If you want to open an account, it asks what kind of account do you want to open? Is it an individual account, an entity, a trust, or a joint account?

And do you want to open a margin, cash, or retirement account?

In a cash or retirement account, the broker does not lend you money, but when you use a margin account, you're getting a 2:1 buying power.

What Is Buying Power?
- Buying power for options is always non-leveraged. So if you put $10,000 in cash, even in a margin account, it means that you have $10,000 in buying power for options.
- Buying power for stocks is leveraged. So $10,000 in cash will give you $20,000 in buying power.
- Portfolio margin

Buying Power For Stocks VS Options
AAPL Example:
What happens if you want to sell, let's say you want to trade the Wheel.
- If you're selling puts, you might be forced to buy Apple at 125 & for each option you have to buy 100 shares of Apple at $125 if assigned, so you would have to bring $12,500 to the table, right?

When you're selling options, the broker is already giving you a discount. The buying power that will be reduced from your options is $2,202. So as you can see, if you are buying Apple at 125, you would have to bring $12,500 to the table, but here the broker is only charging you $2,202.

On a $10,000 account, you could sell 4 of these options. So we see that the broker will charge you $8,795. So on a $10,000 account, at first it seems that you have enough margin for this. Wrong. Don't do that.

Doing it that way would be irresponsible.

On a $10,000 account you're getting $20,000 in buying power. So if you're selling one option, and you would get assigned, then you would have to buy stocks for $12,500 and only have $7,500 left, this is why you only sell one option, and even though your broker will only charge you $2,205.

This is the right way to do this because you're not over-leveraging yourself.

What if you DID sell 4 options and got assigned? You would have to bring to the table 4 times $12,500, so this is $50,000, but you only have $20,000 in buying power.

You are $30,000 short & this $30K becomes a so-called margin call.

A margin call means that right now you have to wire the broker $30,000

Portfolio Margin.

You are getting a 5:1 leverage, or some brokers even offer a 6:1 leverage, instead of 2:1.

I personally use this "excess buying power" when things go wrong when I need to save a trade that is in trouble.

Recommended links and videos:

#MarginTrading #MarginAccount #StockMarket
================================================================================
================================================================================
tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with Rockwell Trading Services, LLC whereby tastyworks pays compensation to Rockwell Trading Services, LLC to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Rockwell Trading Services, LLC by tastyworks and/or any of its affiliated companies. Neither tastyworks nor any of its affiliated companies is responsible for the privacy practices of Rockwell Trading Services, LLC or this website. tastyworks does not warrant the accuracy or content of the products or services offered by Rockwell Trading Services, LLC or this website. Rockwell Trading Services, LLC is independent and is not an affiliate of tastyworks.

[rockwelltradingservices]

I hope this help you understand how to trade with a margin account responsibly. What else would you like to see me do a video on? Let me know in the comments below.

Recommended links and videos:

[JuanFelipeCalle]

This is the explanation I've been looking for the past week. I've seen so many videos about making money on options, but I have yet to see any besides yours that explains the crucial risk of margin (or the "discount") as it applies to options.

[winterism]

that's absolutely RIGHT! avoid the honeycomb offered by brokers, NEVER over-leverage! thx Markus for the kind reminder.

[eyoblibla]

You really remind me of the dude...I love the dude! Keep up the good work man :)

[leafs]

Can you make a similar video on how margin works with interactive brokers ? I’m very confused because it seems I have no buying power when owning stocks and using all my cash but tons of buying power if I own no stocks and trade options only

[lupuskproductions]

So in your 250, 000 account videos - Do you size your total put positions to stay under 250, 000 if assigned to avoid using too much margin? Or do you size based off the 500k w/ margin?

I don't want to borrow any money from the broker, I only have margin because of the advanced trading strategies unlocked by it.

[kiran]

If I a margin account and I sell naked option (put or call) and I do intraday trade or scalping . will there be any margin call impacting me if I am following PDT rule(My balance will be always above 25K) and also for selling one option SPY I might need around 9K but with margin it will come to around 2K right? Please help me understand them. I am using TD Ameritrade

[robertrohrberg]

Herzlichen Dank, Markus, für Deine prompte Antwort👍🏻😊

[Andy_B.]

Hello,

IBKR only offers a 4x leverage on stock trading.

Do you may know a broker that offers more than that?

...not cfd/forex stuff.

Thx

[electricmorning]

Thanks for the explanation. I've been considering trading with margin.

[dirtyhandsoftherepublic]

Markus. You are my trading Shaman. Guide me in the ways of the option. Love you man.

[thejourneymaninvestor]

I actually did not realize that buying power reduction was applied to the determination of required funds when selling a cash secured puts on Tasty. Good video, very helpful! Thanks for sharing!

[yhnmk]

Missed you over the long week bro! Good to see you again!

[michaelperkins]

No. You can still get equal money from cash accounts, from certain firms. And using Margin is a bad idea to use, it's a credit line and you may be on the hook at the end of the day if trading smaller stocks with special requirements. It's a credit card you don't want to use.

[seanntomas]

Hope you had great weekend. A couple days without you is a loss to us all. Your valuable knowledge is an asset too us all. Thank you for all your help.

[CGB.SPENDER]

I take no more than 33% of my net account value in margin. I only invest in indexes etf (QL2 and SSO).

[mxxgexf]

hello sir how long I can allowed to hold my margin position

[mhavissl]

excellent explanation i have seen on this subject. thank you very much. i have a question, does the broker charges you more on having a margin account compared to a cash account?

[starlaw]

Do you have a video about shorting stock? Since margin is needed, how do they charge interest? Daily? How long until I have to close the position? One day? 1 week? Thank you.

[KRIPSYNODUTS]

Hello Markus, I understand that you have $50k account with $50k margin. Using that you can safely sell 8 puts for $125 ($125><100><8 = $100k). In case of assignment we have enough to cover and we used all $100k. As we used the margin, what you will do next, sell 400 shares for $125 and pay the margin immediately and sell 4 covered call or sell 8 covered call using all the margin? My broker charges 8.45% for $50k margin or $12/day. Thanks for your time in advance.