About US stock financing
1、What is a financing transaction？
Financing transaction, also called margin, refers to customers mortgaging securities in their accounts to Sahm and borrowing more funds to buy stocks. Financing transactions have a leverage effect. Sahm customers can have finance transactions by opening a financing account. In addition to trading with their funds, customers can also carry out financing transactions to increase purchasing power and grasp every opportunity to make money in the stock market.
2. What is initial margin ratio?
The initial margin ratio is the percentage of equity required when an investor opens a position with a financing transaction.
3. How does the initial margin ratio work?
Generally, the initial margin ratio determines the leverage of your financing buy trades.
For stocks with an initial margin ratio of 50%, the maximum leverage is: 1/50% = 2;
For stocks with an initial margin ratio of 80%, the maximum leverage is: 1/80% = 1.25.
For example, if the initial margin rate for stock A is 50% and you have $1 million in cash, you can buy stock A with a market value of about $2 million at most. The extra $1 million is in borrowed funds from Sahm.
4. How can I know if a particular stock is eligible for margin trading?
You can check the stock's eligibility for margin trading on its details page. Note: All U.S. stocks support margin buying, but stocks with an initial margin ratio of 100% cannot be taken as collateral.
5. What is the relationship between the margin rate and the stock mortgage rate?
The margin rate and the stock mortgage rate can be converted into each other through the formula: the margin rate = 1 - stock mortgage rate * credit ratio.
The result of calculating the amount of stocks mortgageable by using the margin rate or the stock mortgage rate is the same, that is, the buying power of margin is the same.
6. How is the amount of stocks mortgageable calculated?
The stock mortgage amount is the sum of the collateral amount calculated based on the margin ratio or stock mortgage ratio of all your holdings. The formula is as follows:
Calculated by margin rate: stock mortgage amount = ∑stock holdings *stock current price * (1- margin rate)
Calculated by stock mortgage ratio: stock mortgage amount = ∑stock holdings * stock current price * stock mortgage ratio * credit ratio
For example:
Assuming you holds two mortgageable stocks and the credit ratio for Sahm is 70%, consider the following scenario:
Hold 1,000 shares of A stock, and the stock price is USD 76.75. The margin rate of A stock is 44%, and the stock mortgage rate is 80%;
Hold 2,000 shares of B stock, and the stock price is USD 12.20. The margin rate of B stock is 37%, and the stock mortgage rate is 90%;
Calculated with the margin rate:
The mortgage amount of A stock = 1,000*76.75*(1-44%)=USD 42,980
The mortgage amount of B stock = 2,000*12.20*(1-37%)=USD 15,372
Then, the total stock mortgage amount = A stock mortgage amount + B stock mortgage amount = USD 42,980 + USD 15,372 = USD 58,352, which means users can borrow a total of USD 58,352 by mortgaging these two stocks.
Calculated with the mortgage rate:
The mortgage amount of A stock = 1,000*76.75*80%*70%=USD 42,980
The mortgage amount of B stock = 2,000*12.20*90%*70%=USD 15,372
Then, the total stock mortgage amount = A stock mortgage amount + B stock mortgage amount = USD 42,980 + USD 15,372 = USD 58,352, which means users can borrow a total of USD 58,352 by mortgaging these two stocks.
The margin rate of stocks fluctuates with the market or may be adjusted occasionally, so you are advised to keep an eye on it. Financing transactions have certain risks, and it is recommended to pay attention to the risk status of the account.