Chat with us, powered by LiveChat

Warrior Trading Blog

Is A Stock Marginable? | Rapid Illustration

Ross_Lightspeed

Hey everyone. Ross here from Warrior Trading. I want to answer a question that you may have, which is, how do I know if a stock is marginable or not? How do I know whether or not I can use my margin to buy the stock?

When you have a margin account, if you put in $25,000, you’ll have times four in available buying power. That means you’ll have $100,000 in buying power, however, that means you’re using your leverage, and you’re using your margin that’s available to you. But the broker will restrict margin on certain stocks, so how do you know which stocks you can use the margin on and which stocks you can’t use it on?

All right. Let’s look in the platform. In the Lightspeed trading platform, what you’ll notice in the top, right-hand corner is this little 25% icon. When you see that, you know that you only need 25% cash on hand to take this as a day trade. If I want to buy $100,000 worth and I’ve got 25,000 cash, that means I’ve got a 100,000 buying power. I can buy the full $100,000 worth of this stock.

That’s for a day trade. Now, overnight margin is always two to one, not four to one. Now, if we look at another stock, a lower price stock. Let’s see. KTOV, this is one today. This is a low price stock, and it says 100% that means 15 million shares of volume today, but you can only use your cash equity balance. You cannot use your buying power. Now this account here is an IRA account. I have my equity, and I don’t have margin. I can only use this amount, but if I switch over to my traditional account, you’ll see I’ve got the 44,000 times four is $175,000 in buying power. But with KTOV, I can only use this amount here.

With Facebook, well I can use all the buying power over here. Generally what I’ve found to be true, this is a little bit of a generalization, is that most stocks below $3 or even below $5, you’ll have a little bit of a harder time finding 100%, or finding that you can use 100% of your buying power and that they’re fully marginable.

You’ll find some that are, Sirius Satellite Radio. Here you can see, as of today, you can use your margin on it, but a lot of the lower price stocks, because they’re more volatile, because they’re more risky, the brokers use a clearing firm. The clearing firm is going to restrict margin on them, and it’s a risk management measure. They don’t want to have someone jump into one of these stocks using all their buying power only for it to drop 50% in one day, and now they’ve got a margin call.

The way you can tell whether a stock is marginable or not is on Lightspeed, looking in the top corner, just like that. Other platforms are different and may have that notice in a different place, or may not have that notice at all. But the nice thing with Lightspeed is you can see it right there, so you can know as soon as you pull the stock up, am I going to be able to use my buying power? Or is this cash only? And in this case, oops, cash only. I’m a little bit restricted with how many shares I can buy. You just have to be able to plan accordingly.

I hope that’s answered any questions that you may have on how do you know if a stock is marginable, and as always, if you have more questions, feel free to reach out.

If you’re still watching, you must have really enjoyed that video, so why not subscribe and get email alerts any time I upload new content? Remember, when you subscribe, you become a member of the Warrior Trading family.