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If he buys $2000 of a stock on margin and the stock goes
down 35% he gets a margin call. He can not meet it
because all he has is $2000. He has lost $1400 of his
original $2000. If he had bought the stock with no margin
he would not be forced out on a margin call. It would
be impossible for him to raise $25,000.
Norman E.
Levent Erbora wrote:
>
> I still fail to see how this new rule will help and protect your friend against himself or anybody else for that matter.
> Granted, it may be a little harder for him to scrape together a $25K stake, but what difference does it make?
> Instead of buying 100 shares of a $40 stock, he'll buy 100 shares of a $20 stock. Or, instead of 1 trade, it will take him 2 trades to wipe out his account. Or, maybe he'll discover the futures market where the typical margin leverage runs around 2 - 3 %. There is always the options market where he can "control" a stock for pennies on the dollar, where his account will last until the next expiration date. Too much trouble opening and maintaining a trading account? Why not go to Vegas, or better yet, just log on to one of those on-line casinos; if he is really keen on stock trading, there are many of these casinos/bucket shops where you can actually gamble on stocks or indexes at $20 - $50 a pop.
>
> In the mean time, those of us who are not just "playing" the market, but WORKING and working hard to make an honest and honorable living for ourselves and our families will get the short end of the stick.
>
> Best regards,
>
> Levent Erbora
>
> -----Original Message-----
> From: Norman Phair [SMTP:ericrogers@xxxxxxxxxxxxx]
> Sent: Tuesday, February 01, 2000 8:20 PM
> To: realtraders@xxxxxxxxxxxxxxx
> Cc: realtraders@xxxxxxxxxxxxxxx
> Subject: [RT] Re: SEC New Margin Rule Proposal
>
> If you have 2000 eggs or if you have 25,000 eggs and you
> put them in one basket, you had better dam well
> watch the basket. Howard, since you are still around and
> able to trade I must assume you were able to lose
> the $45,000 without losing any sleep. Nobody should
> play the market with money they cannot afford to
> lose. If they do, they will surely lose because their
> emotions will defeat them. Ira's comment is why margins
> are going up. I have a friend who is on disability. He
> scrapped together $2000 to open a margin account with
> money he can not afford to lose. The minimum margin has
> been $2000 for a long time, this is way overdue.
> A fool and his money is soon parted. Unfortunately this
> bull market has made people think they can get rich without
> working.
>
> Norman E.
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