I’ve been trading for some time, but I keep coming across reg T in various discussions.
I don’t really grasp what it means or how it impacts my trades. The explanations I find are often overly complicated.
When buying stocks, you require a 50% margin. Your equity can drop to about 25% before a margin call. If you purchase $10,000 in stocks with $5,000 cash, you can lose around $2,500 before your broker asks for more funds. Brokers typically notify you before reaching that 25% maintenance level.
Reg T means you need 50% of your own cash when buying stocks on margin.
Want $10,000 in stocks? You need $5,000 in your account. The broker covers the rest.
Doesn’t affect forex though. Forex margin rules are way more flexible - I can trade major pairs with just 1% margin at most brokers.
Only matters for US stocks or if you’re mixing stock and forex trades in one account.
Regulation T is the Fed’s rule on borrowing money to buy securities. You can borrow up to 50% of the purchase price from your broker. It keeps people from going nuts with leverage on stocks.
Reg T caps stock buying power at 2:1 leverage. You put in $5k, broker matches $5k, now you’ve got $10k to work with. The key thing is maintenance - keep your equity above 25% of your total position or you’ll get margin called. This is just for US stocks though. Forex is a whole different game with way higher leverage.
Only matters when buying stocks with margin.