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So today, my friends, my family, my fellow girly gang - i want to talk about margin calls because this is a topic. That's been hotly discussed and kind of asked about over the last 24 48 hours. What is a margin? Call when margin call can hedges get out of margin, calls who is margin? Call you know, walk you through this entire process and keep it as simple as we possibly can for anybody out there who might be new to you know the stock market to amc to the plumbings, the mechanisms whatever it might be. This is for you right.

So, let's just start into the video two things you need to understand account value which is cash as well as the difference between that and margin, so account value. What is this? This is your actual settled cash right. So let's say that you have a hundred thousand dollars in your broker that you deposited you're starting day, one right that cash once it settles that t2 system right is your account value. That's your cash! That's your set of money! It's yours! You can do it with what you want right.

You can decide to if you're a hedge fund waste at all on shorting amc stock or you could decide to do something else. Go on nancy stock right! It's your money! That's your cash right margin and leverage is two different things right now with cash and your normal account value. You know cash balance account. It takes time for things to settle right.

You've got that t2 settlement system. So if you're, using purely and strictly a cash account, you don't have access to your funds after you press the sell button for possibly a couple days right depends on the broker, but typically you got that t2 system two days for transactions to settle, so you can Use that cash again with margin, what happens? Is they spot you money until that cash actually settles right? You're gon na have a different variety of things. We're gon na primarily focus on leverage, because this is where margin calls really come into effect, but you can also have a one-to-one margin account. If you have a hundred thousand dollars of cash, they give you a hundred thousand dollars of buying power.

Bp, you can think of buying power essentially of how much money you have to play with in the stock market right. But the cool thing and the important thing with margin is that it accrues interest. So, even if you are using a one-to-one margin account if you're holding a position on margin, it does accrue interest on any given security right. The interest depends on a couple different things: if you're long on a stock short on a stock, how hard to borrow the stock is how risky the stock is right.

There's a lot of different facets that play into this, and it does also depend on your broker, but leverage is where you really get into trouble with margin calls now. How does leverage work? Why is this important so leverage, i'm just gon na use? A simple example of a two to one leverage setup in this instance. A two to one leverage would mean that you get two times the buying power of your actual settled cash account value right. So in this instance, if you had a hundred thousand dollars account value settled cash, you would actually get to play with two hundred thousand dollars.

Essentially, your broker, whether your institution or the retail investor, they spot you an extra hundred thousand dollars and you get two hundred thousand dollars of buying power in a four to one. It's the exact same thing right. If you have a hundred thousand dollars, you actually get to play with four hundred thousand dollars, and the risk goes up and up and up and up and up and up and up the more you're actually playing with in buying power. The more leverage that you've got right because it takes less of a loss to be able to trigger a margin, call right now we'll get into what triggers margin calls here in a little bit.

But this is a really important thing to really understand in any sort of margin situation, leverage situation which, by the way, if you haven't seen any of my videos, i think there's a lot of heavy leveraging taking place in the stock market. I think banks have given out a lot of loans to a lot of institutions, and i think institutions are playing with money. They don't have to be completely frank right. We're actually going to give you an example of what a margin call looks like towards the end of this video as well, but that's sort of what you're looking at and the margin requirement, or you can think of the margin maintenance requirement right.

This is essentially what triggers margin calls. This is the level this depends on different brokers, whether it's a prime broker institutions or just a regular broker that you've got with weeble robin hood, blah blah blah. You know the whole spiel right um. This is exactly what determines when the algorithm takes place or your broker takes place.

The bank steps in you don't get control on whether or not you get uh. You know liquidated other than if you were to settle the margin requirement right now. I've actually got an example here for you of what this looks like. So a margin maintenance requirement would be right here, so this depends on the broker.

You can have. Sometimes you know 15. 25. 30.

40.. It depends maybe, on the risk of your security, depends on the broker you're going with right, new york, stock exchange and finra the regulatory body for the majority of security firms operating united states requires investors, keep at least 25 of the total value of their securities as Margin some brokerage firms require more 30 to 40. So here's an example right if you were to use thirty percent margin requirement and you had five thousand dollars on a two to one leverage, meaning that you get to play with ten thousand dollars off of your original five thousand dollars of cash. What ends up happening is once you meet that thirty percent margin requirement, which in this case ends up being just below 7 100.

You get what's called a margin, call someone knocks on your, not literally, not literally knocks on your door, but you get a phone call. You get an email, you get a text message, you know somebody gets a hold of you and says: hey look, you've got x amount of time, and this time can, you know greatly differ depending on whether the broker is or how much you're out right. It could be a couple days, it could be 24 hours, it could be a month. It just depends on the scenario, but you're going to call them.

They say: hey, look. You've got a couple different options here. You either a have to maintain that that margin, maintenance requirement. You have to liquidate some securities, you have to add some marginable securities or we're going to forcibly liquidate you you that's exactly that's what it comes down to right.

So here's the whole process kind of drawn out for you, so in four main steps, you've got a bank or a broker and you've got an investor. It's gon na be an institutional investor or retail investor, but we're gon na talk about the institutions. Here, let's say that this investor has a hundred million dollars and they're going to be playing on three to one leverage right, meaning that they get to play with 300 000 or 300 million dollars of buying power, other hundred million dollars. What happens in step? One is this bank slash broker, it can be either or spots them 300 million or 200 million dollars right.

I meant to draw two here: 200 million dollars goes out, and now this investor on his original 100 million dollars of cash, has 300 million dollars right. He ends up putting this into the market right. He can go long on stock. You can go short on stock.

He can do whatever he wants to do. He doesn't have to use the actual full amount of buying power with that three to one leverage that he's got, but let's just say that he does because we know there's a lot of markets out there. There's a lot of you know: institutions out there who are heavily leveraged in the market. 300 million.

You know dollars goes short into the market. He essentially decides to bet against the economy. He decides to bet against the company, and this is where risk really gets astronomical. Playing with leverage, because you have infinite upside for losses right so three to one leverage by the way, it does not take much of a loss to really come out the hole and to get a margin call if that sort of situation was to happen, because the Majority of what you're playing with for money? Isn't your money right.

So let's say somebody buys a stock at 10 bucks right or they go short of stock at 10 bucks and all of a sudden, it runs up to 12 bucks. Well, all of a sudden he's down 20. This institutional investor is down 20, so off of 300 million dollars. What would that come out to right? Let's just think about that 300 million times 0.2 is 60 million dollars that he's out, but how much of that is his actual own money right if you were to take 0.33 times that 20 million, if that's his own money, 40 million of that is the bank Broker right, that's problematic, that's problematic for this banker broker.

So at some point in time, when the losses get big enough, they start having margin calls they start saying: look you have to either a maintain your your minimum margin, maintenance requirement or b liquidate some stock or c. You know give us some marginal securities right. There's a couple different ways i can work out, but to finish off this process right in an ideal world, when no margin calls happen. Eventually, they decide to buy back this stock right, at least the amount in which they ended up putting into the market 200 200 or 300 million dollars.

Let's just let's, just hypothetically throw that number out there right. They end up buying back that stock. Hopefully the lower price, maybe at a higher price right. We know what's gon na happen here, but you get the whole picture and then they return that 200 million dollars back to the bank or broker and their maintenance requirement is good to go.

They don't have that buying power actually being utilized in that current moment in time. Well, in a margin call the situation looks different right, so you've got you want to run a stock at 10. Bucks not look at anything in particular, maybe amc who knows, but the stock goes up. Let's say it goes from ten dollars to.

Oh, i don't know hypothetically trading at uh. You know 55. What i don't know what's at right now, uh it's currently sitting at 53.7. Let's just say hypothetically, it goes to 53 bucks.

Well, look at this interesting, so you want to short the stock at 10 and now all of a sudden, it's trading at 53 bucks. So you are down uh uh, i don't know pretty pretty 400 something astronomical well, if you're on a three to one leverage, guess what not only are you out of your money, but you owe your bank slash broker a lot of money. Now you might be thinking to yourself right how come they haven't, had a margin call yet, and this comes down to a couple of different ways that margin calls can work. You can add cash to your account value to maintain that overall margin requirement you can liquidate, which i don't think has happened.

Yet you can have marginal securities put into your account or essentially used as collateral in its place or you can force liquidation. So i don't think this. Fourth one has happened yet i don't think the force liquidation has happened. I think it's inevitable the way this has been running.

I think what has been happening is one and three you're playing with some people out there, working with billions of dollars. Billions billions billions billions of dollars, so anytime, i've been able to bet you that there's some big hedge funds and institutions, firms out there who have gotten margin called on amc who are short on the stock, and you know what they did instead of uh just liquidating And admitting they were wrong, they add cash to their balance right, they add money to their overall brokerage firm, which maintains that maintenance margin requirement right either that are marginal securities. They they add. You know some sort of security that essentially acts as collateral to that overall account.

So the bank and broker is happy. You know saying: hey, look. You want to keep playing the game, you can keep playing dumb games of winning stupid prizes, but you know you just got to keep adding that cash. This is to me, what's been happening lately now.

I want to show you an example. Next of what can actually happen here in a margin call, so i've pulled up for you discovery now. This is a stock that actually got you know. A margin call ensued for a massive massive sell-off on discovery stock.

It was an astronomical sell-off. 79.59, at its peak down in about a week to 34.60, that's a 50 loss from 79. That's astronomical, that's more than 50 loss and what happened is rk ghosts got margin called on the long side. They got liquidated out of a long position which ended up making.

This the stock plummet because they had to exit their positions, forcibly exit their positions. They didn't have any control over that, and if this happened on the long side, it can also happen on the short side, the short side, meaning a short has to buy back its shares, which forces huge price swings and that to me can very easily happen. In amc stock right, it can easily happen so see this exact move for the downside on discovery right that same sort of move can happen for the upside on amc. If you get a margin, call on a short position, it can force an upside move right, huge, huge, important piece to talk about here: hedges if they don't have the cash or the securities essentially collateral, do not control liquidation.

They cannot money. Buys you a lot of stuff money, buys you freedom. I've said that a million times, but if you don't have the money, if you pissed away all of your capital, all of your account value all of your cash and you can't any longer maintain that maintenance margin requirement right. You have to get liquidated.

Your shares are toast, they're cooked they light you up in flames. So when margin call, this is a very complex question, but this to me you're playing with some big boys in the pond, my friends you're playing with sharks. These guys, these big hedge funds and firms they uh they've got a lot of capital. They've got a lot of freaking money, so it's when these guys can no longer afford to keep putting money into their broker the prime broker to maintain their margin requirement.

Once that happens, margin calls ensue because then there's no control. The only control these hedge funds have is, if they have more money right, they can. They can essentially just pay off their margin balance and keep riding the stock keep taking their l, keep taking their l. Keep taking their l but when they run out of capital right when they put themselves so deep in the hole that at some point they decide, it doesn't make any more sense to fight the wave here to fight the current margin call ensues that's as simple as It gets and that's essentially what a margin call is it's going to happen.

It really is the longer this continues to run up, they accrue interest, their losses continue to stack right and the hard to borrow stock on amc, the cost of borrow is astronomically high. You throw the cost of borrow on top of the maintenance margin right, the margin for two to one three, to one four to one leverage: they are taking crazy losses. You can't even you can't even play leverage on amc and weeble for for good reason. I think it's a fair statement right, so it costs the little guys, nothing when we say it cost the big boys everything to hold it's, because it does right margin requirements.

You grew interest. You accrue interest big time right hard to borrow stock you're shorting a stock. It costs interest just to freaking. Take that security.

If even if you aren't going to use leverage, it costs them everything to hold casa the little guy, nothing and that's what i've got for this video, so blah blah blah subscribe. Everyone do my friends catch on the next one: much love light, taps and peace.