投资学课件—博迪第九版—Ch03 Types of Orders & Margin Accounts

Examples

Buying on margin
Stock price of X Corp: Initial margin: Maintenance margin: Shares purchased:

$100 60% 40% 100
Initial position
Borrowed $4,000 Equity $6,000

How much can the stock price rise before a margin call?
Exercise 1

You’ve borrowed $20,000 on margin to buy shares in Disney, which is now selling at $40 per share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price falls to $35 per share. a. Will you receive a margin call? b. How low can the price of Disney shares fall before you receive a margin call?

Limit Orders


price is specified by the investor, without knowing it will be executed limit orders vs. market orders: a tradeoff between immediate execution and certain price

Short selling on margin
Short sale Dot Bomb: 1,000 Shares Initial margin: 50% Maintenance margin: 30% Initial price: $100

Initial Position
$100,000 $50,000 Margin & Equity $50,000 Stock Owed $100,000
Sale Proceeds initial margin

New position
Stock price rises to $110 Sale Proceeds $100,000 Initial Margin $50,000 Stock Owed $110,000 Net Equity $40,000 Margin% = $40,000/ $110,000 = 36%
Stock $10,000

New position
Borrowed $4,000 Equity $3,000
Stock price falls to $70 per share Stock $7,000
Margin% = $3,000/$7,000 = 43%

How far can the stock price fall before a margin call?

Stop Limit Orders

conditional limit orders two prices specified: stop price and limit price
Margin Accounts

Principle of making profit: BUY LOW, SELL HIGH

Margin account


Initial margin vs. maintenance margin How to compute the actual margin?

buying on margin

selling on margin

What happens?

if actual margin > initial margin: unrestricted if actual margin < initial margin > maintenance margin: restricted < maintenance margin: margin call

buy low first, sell high later: long position sell high first, buy low later: short position CAN borrow money or securities from the broker buying on margin vs. short selling on margin
Exercise 2

On January 1, you sold short one round lot (that is, 100 shares) of Zenith stock at $14 per share. On March 1, a dividend of $2 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $9 per share. You paid 50 cents per share in commissions for each transaction. What is the value of your account on April 1?
Chapter 3 Types of Orders & Margin Accounts
Types of Orders

Biblioteka Baidu
Market Orders

executed immediately at current market price e.g.
the best ask price: 33.60; ---- market price to buy the best bid price: 33.59. ----- market price to sell

Stop Orders



conditional market orders the stop price regarding as a trigger, when current market price reaches the stop price, the order is executed sell order: stop price < market price, while the order is placed buy order: stop price > market price, while the order is placed