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Margin Account
Instead of cash account you can open a margin account, although you could open both types of accounts at the same time. By ways of a margin account you may buy or sell securities by only paying part of the price amount; the stock exchange agency will pay the rest and will consider it as a loan of money to you.
To buy a margin in credit can be a tempting and lucrative way of increasing your portfolio through the leverage. The Federal Reserve Council, the different stock exchange markets and the stock exchange agencies have different criterions in reference to the type of investments that can be bought in credit and of what percentage can it reach.
The Federal Reserve criterion (such as established in the T disposition) currently permits to receive loans from the stock exchange agency of up to 50% of the purchasing price of the securities that are susceptible of being bought in credit. This gives the investor the faculty to buy the double number of securities, which may increase considerably his benefits in a rising market, although it could also result dangerous in a dropping market.
In this last hypothetical situation, the lowering of prices could give place to a reposition warning: the agency asks the investor to deposit in its account an extra number of securities, to avoid the sale of part of his securities portfolio to fulfill the minimum requirements that about loans contains the agreement of margin acquirements.
To open a margin account you will have to fill the same kind of forms that when opening a cash account; if well in this case you will also have to legalize in writing the following contracts: a margin contract or a pignorative (pledge) contract in which conditions for the agency to finance your operations, and by which you authorize the stock exchange agent to use your securities as pledge guarantee to possible bank loans are specified, and a credit contract in which the dates and the procedures to charge the interests to your account are established..
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