Chapter 9

Borrowing Money and Securities: The Long and Short of Margin Accounts

IN THIS CHAPTER

Bullet Understanding the specifics of margin accounts

Bullet Zoning in on the initial margin requirements

Bullet Calculating with long margin accounts

Bullet Summing up short margin accounts

You don’t necessarily need cold cash to buy securities. Thanks to the wonder of margin accounts, you can borrow money from a broker-dealer to purchase securities or borrow the securities themselves. Margin accounts allow customers to buy more securities from you (as a registered rep) than they otherwise would, thus leading to more money in your pocket (a greater commission). However, margin accounts are not without an additional degree of risk (which a lot of people found out back in 1929). Margin accounts are great if the securities held in the account are going in the right direction but horrible if they aren’t.

In this chapter, I cover the Series 7 exam topics relating to short and long margin accounts and show you how to put those math skills to use. And of course, I give you plenty of practice questions.

Practice a lot of ...

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