Brokerages Might Be Under Pressure

[Zhong Lu + 845]

Normally for a 4 dollar stock, you can margin a little.  Obviously you can't margin 100% but you can go over by like 20 or 30% and it's no big deal.

But now if you accidentally go over by even a little like 2% you immediately get a message saying "maintenance requirement warning, blah blah blah."  

They're completely shutting off margins.  Just look at the mess going on in JNUG.  

Edited February 28, 2020 by Zhong Lu

[George8944 + 128]

I don't think they are under pressure. I think they just learned their lesson from 2008.  If you're buying on margin you are far braver then me!  Buying on margin binds your hands.  

I have a margin account because its a requirement to trade options at my broker.  I only use it to that end.  I don't borrow money to buy stock.  

I've played jnug several times.  It's a 3x ETF so very volatile.  As such, the best way I found is to enter my sell order immediately after I get my order confirmation.

Good luck!

[0R0 + 6,251]

On 2/28/2020 at 12:01 PM, Zhong Lu said:

Normally for a 4 dollar stock, you can margin a little.  Obviously you can't margin 100% but you can go over by like 20 or 30% and it's no big deal.

But now if you accidentally go over by even a little like 2% you immediately get a message saying "maintenance requirement warning, blah blah blah."  

They're completely shutting off margins.  Just look at the mess going on in JNUG.  

That is because the funding for margins comes out of the money markets. So it is the same pool where repos are done. The Fed is ignoring the stress thinking that there is something discretionary they can signal to the market to behave differently so that they don't have to print more money. But the repo demand is coming from a NEED for liquidity in the Eurodollar market, which is being tapped by weak China banks with international activity and by the likes of Deutschebank and to a lesser extent HSBC Paribas and Standard Chartered. Their alternate choice is to default 

The Fed ignores this entirely as if it doesn't exist. Which is one of the core reasons for policy errors these past two decades. Their reluctance with reserves now is not playing with TNT buy nitroglycerin. You can't affect overleverage now with tight credit, it can only affect the future. Contrary to Fed thinking they are not easy but tight. And in the Coronavirus environment they are super tight.