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How is one able to add diversity to one's Robinhood portfolio while utilizing near 100% of Gold (margin)?

I was told in my previous post, as well as reiterated by a Robinhood Rep, that when making a purchase, cash is used first and then margin.

Scenario: We have 5K cash and 5K margin and would like to buy stocks ABC (5K) and XYZ (5K), each of which has the lowest possible "initial requirement" of 50%.

When we purchase 5K of ABC, the purchase will consume our 5K cash and leave us with 5K margin (now useless to make purchase of XYZ, since 50% initial requirement).

How do we use 100% of margin if we want to hold 2 or more positions?

Maybe this scenario is a good reason to diversify brokers or manage a second Robinhood account for my wife?

From Robinhood Rep:

In your scenario, yes you would be correct as you would have $5k in Gold left with no cash so you would be unable to use 100% of Gold to purchase any stock.

Dustin
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2 Answers2

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Reg T sets margin borrowing at 50% so if you want to buy $10k worth of stock, you must put up $5k and the broker loans you $5k. There are various formulas involved:

Buying Power = Cash Available/Margin Pct = $5k / 50% = $10k

Market Value - Debit Balance = Equity

so

$10k = Market Value

$ 5k = Debit

$ 5k = Equity

This satisfies the initial margin requirement --> $10k / $5k = 50%

You can use fully paid securities for collateral as well. Suppose you own $5k worth of stock.

$5k = Market Value

$ 0 = Debit

$ 5k = Equity

The formula for determining Buying Power is:

Securities deposit = (Purchase Amount x Margin%)/(100% - Margin%) = ($5k x 50%) / 50% = $5k

So you can buy another $5k of stock if you have $5k of fully paid securities

The position now looks like this:

$5k +$5k (two stocks) = Market Value = $10k

$ 5k = Debit

$ 5k = Equity

which is identical to the first scenario where $5k of cash was deposited

Bob Baerker
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Buy $5000 of stock "A".

That will then go down in market price, to say $4400.

You can actually use that amount (ie, $4400 - or whatever it is priced at on a given day) as a margin calculation.

So they loan you 4400 on margin.

So, they'd let you buy another $4400 of stock. In company B for example.

Let's say the next day company B happens to go down from $4400 to $4000, and company A goes down from 4400 to 4000.

You now have $8000 of stock. You're forced to sell it due to the swing, so you get 7900 (less all the fees) and they instantly take the 4400 you borrowed on margin.

You now have 3500, so you turned 5000 into 3500 in three days.

Fattie
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