A customer has the following in his long margin account. Market value: $18,000, debit balance: $10,000 and SMA: $2,000. How much of the SMA may be used to purchase additional securities?

By Peter Cherewyk AAA
A:

A. None



B. $1,000



C. $1,500



D. $2,000




Correct answer: D

Explanation: The account is in restriction since the equity is less than 50% of the market value. [MV – DR = EQ --$18,000 - $10,000 = $8,000]. 50% of $18,000 = $9,000. The account is in restriction by $1,000. The SMA may be used so long as it does not push the EQ below the 25% maintenance level.



RELATED FAQS

  1. What is a common price target when identifying a double bottom?

    Learn how to identify a double bottom stock pattern and where to set a target selling price point to get the most out of ...
  2. What are common trading strategies used when identifying a double bottom

    Use simple, low-risk trading strategies to take advantage of a double bottom formation. Traders typically take one of these ...
  3. Are Doji patterns important when trading forex pairs?

    Find out why forex traders make heavy use of candlestick patterns such as the doji, which can be used as a signal of market ...
  4. What are the most common momentum oscillators used in forex trading?

    Explore two frequently used momentum indicators in forex trading, the moving average convergence divergence, or MACD, and ...
RELATED TERMS
  1. Ceded Reinsurance Leverage

    The ratio of ceded insurance balances to policyholders’ surplus. ...
  2. Mass Index

    A form of technical analysis that looks at the range between ...
  3. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
  4. On-Balance Volume (OBV)

    A momentum indicator that uses volume flow to predict changes ...
  5. Negative Volume Index - NVI

    A technical indicator that relies on changes in a security’s ...
  6. Accumulation/Distribution

    An indicator that tracks the relationship between volume and ...

You May Also Like

Related Articles
  1. Investing on margin can be profitable but it's a risky play that needs care.
    Trading Strategies

    Margin Investing: Big Risk, Big Reward

  2. Options & Futures

    The Potential Of Low-Priced Options

  3. Trading Strategies

    An Introduction To Price Action Trading ...

  4. Trading Strategies

    Trading Volatile Stocks with Technical ...

  5. Technical Indicators

    The Top Technical Indicators For Commodities ...

Trading Center