FIN 4504 Lecture Notes - Lecture 4: Interactive Brokers, Downside Risk, E-Trade
9 Sep 2016
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When you buy a stock, you must pay commission or may instead be asked for the spread. Commission: fee paid to broker for making transaction. > bid: price at which dealer will buy from you. > ask: price at which dealer will sell to you. Combination: on some trades both are paid. Important to trust your broker so they don"t trade excessively. Investors have access to a source of debt financing broker"s call loans. Investor contributes only a portion of purchase price called the margin. Borrow the remainder of purchase price from a broker. Margin = equity in account/ market value of securities. Minimum initial margin is currently 50%; you can borrow up to 50% of the stock value. Maintenance margin requirement (mmr): minimum percentage margin before additional funds must be put into the account. Margin call: notification from broker you must put up additional funds.
