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When the total value of collateral after haircuts dips below the maintenance margin requirement, the position holder must pledge additional collateral to bring their total balance after haircuts back up to or above the initial margin requirement. Financial markets Margin policy. If this results in the market value of the collateral securities for a margin account falling below the revised margin, the broker or exchange immediately issues a "margin call", requiring the investor to bring the margin account back into line.
Algorithmic trading Buy and hold Contrarian investing Day trading Dollar cost averaging Efficient-market hypothesis Fundamental analysis Growth stock Market timing Modern portfolio theory Momentum investing Mosaic theory Pairs trade Post-modern portfolio theory Random walk hypothesis Sector rotation Style investing Swing trading Technical analysis Trend following Value investing. From Wikipedia, the free encyclopedia. The initial cash deposited by the trader, together with the amount obtained from the sale, serve as collateral for the loan. This difference has to stay above a minimum margin requirementthe purpose of which is to protect the broker against a rise in the value of the borrowed securities to the point that the investor can no longer cover the loan. In other words, brokers required investors to put in very little of their own money.
The initial cash deposited by the trader, together with the amount obtained from the sale, serve as collateral for the loan. In terms of futures and cleared derivatives, the margin balance would refer to the total value of collateral pledged to the CCP Central Counterparty Clearing and or futures commission merchants. Retrieved from " https: They had to deliver more money to their brokers or their shares would be sold. For speculative futures and derivatives clearing accounts, futures commission merchants may charge a premium or margin multiplier to exchange requirements.
It could also happen when the margin requirement is raised, either due to increased volatility or due to legislation. The margin interest rate is usually based on the broker's call. On United States futures exchangesmargins were formerly called performance bonds.
The exchange calculates the loss in a worst-case scenario of the total position. Electronic communication network List of stock exchanges Trading hours Multilateral trading facility Over-the-counter. The net value—the difference between the cash amount and the value of loan security — is initially equal to the amount of one's own cash used. This was one of the major contributing factors which led to the Stock Market Crash ofwhich in turn contributed to the Great Depression. The net value—the difference between the value of the securities and the loan—is initially equal to the amount of one's own cash used.