1. CASH ACCOUNTS AND MARGIN ACCOUNTS
• Clients with regular cash accounts are expected to make full payment for purchases or full delivery for sales on or before the settlement date. The settlement date is specified in the contract, generally according to the following industry rules: Government of Canada Treasury bills—on the day that the transaction takes place All other securities—two business days after the transaction takes place
• In contrast, margin accounts are used by clients who wish to buy or sell securities on partial credit. In such cases, the client pays only a portion of the purchase price and the investment dealer lends the balance to the client, charging interest on the loan.
2. MARGIN ACCOUNT TRANSACTIONS
• A long margin position allows investors to partially finance the purchase of securities by borrowing money from the dealer. Investors buy on margin with the expectation that the price of the security will rise.
• A short margin position allows investors to sell borrowed securities in the expectation that the price will fall, allowing the investor to buy back the shares at a lower price for a profit.
This requirement to deposit additional money is known as a margin call.
MARGIN RISKS
• Margin increases market risk
• Loan and interest must be repaid
• Margin calls must be paid without delay
SHORT MARGIN ACCOUNTS
Short selling
There is no limit on the amount of time that a short sale position
COVERING A SHORT POSITION
DECLARING A SHORT SALE
sell-order ticket Short (or S)
RISKS OF SHORT SELLING
• Borrowing shares
• Adequate margin
• Liability
• Buy-in requirements
• Insufficient information
• Price action
• Unlimited risk
• Regulatory risk
TRADING AND SETTLEMENT PROCEDURES
bid-ask spread
HOW SECURITIES ARE BOUGHT AND SOLD
TYPES OF ORDERS
• market order
• limit order
• day order
• good through order
• stop loss order
• stop buy order
• professional (PRO) order