Margin Calls, and how to avoid them
If you have a Margin Account, you may have incurred a margin call before. There are many regulations associated with trading on margin, and navigating those regulations is important. Here we have compiled a list of different kinds of margin calls, how to avoid them, and how to meet them.
· EM Call: an Equity Maintenance Call occurs when a Pattern Day Trader (PDT) has an account value below $25,000. Essentially, if you make four or more day trades in five business days and your account is below $25,000, you will get an EM Call.
o Avoid: keep track of your day trades. Turn off all stop-loss and take-profit orders if you have zero day trades left for the day.
o Meet: deposit the amount requested immediately.
o Remember: a day trade can be any security that you buy and sell in the same day. For example, if you purchased 100 shares of stock XYZ yesterday, then purchased 10 more today, then sold 5 of them today, that would be considered a day trade. A day trade can also be a buy to open and a sell to close; it is all based on execution time.
· RT Call: a Regulation T call occurs when an account holds a position overnight that exceeds their overnight buying power. For example, if your overnight buying power is $6,000, and you hold $7,000 in securities overnight, you will incur an RT Call.
o Avoid: keep track of your overnight buying power. Make sure you sell any positions that exceed your overnight buying power by 4:00 pm.
o Meet: there are two ways to meet an RT Call: you can deposit enough money/securities to meet the call, or you can liquidate or transfer in marginable stocks worth two times the amount of the call, or liquidate non-marginable stocks worth the amount of the call.
· DT Call: a Day Trading Call occurs when opening trades exceed the day trade buying power issued on a given day. For example, if you have $10,000 of day trading buying power and make one purchase for $15,000, you will incur a DT call. Keep in mind that your DTBP is a static number that cannot be increased with intra-day profits or deposits.
o Avoid: keep track of your day trade buying power, and be careful not to buy more than you can afford!
o Meet: you can meet a DT Call by depositing enough money to meet the call. You cannot meet it by liquidating securities.
o Remember: if you are in an EM Call, your day trade buying power is zero, so if you day trade while you have an EM Call, you will get a DT Call.
We can lift an EM call once every 90 days. Think of it as a get-out-of-jail-free-card as there are no exceptions to this 90 day waiting period. An EM Call will fall off the next business day, and your day trades will replenish on their normal schedule. An RT Call takes two business days to clear and is a manual process so please be proactive in letting us know once you meet the call. A DT Call can be lifted after 90 days. DT Calls and EM/DT call closures are also manually reviewed so let us know as soon as you meet the call.
Every day, we get calls from clients asking what type of account they are trading with. Lots of people ask "is this the right account type for me?" and, well, it depends. Different people trade differently.
Before I sat down to write this letter, I re-read what I wrote for Webull’s 1 year anniversary (you can read here) and I am truly humbled at how Webull has grown over the past year.
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