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CFA Equity

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For more information on this video, and to sign-up for our 10-day Free CFA Course click here - http://www.edupristine.com/10-day-cfa/cfa-equity/ ...

For more information on this video, and to sign-up for our 10-day Free CFA Course click here - http://www.edupristine.com/10-day-cfa/cfa-equity/
To know more about these trainings, do contact us at -M: +91 80800 05533
CFA Equity session explains important characteristics of the markets in which equities, fixed-income instruments, derivatives, and alternative investments trade. The reading on market organization and structure describes market classifications, types of assets and market participants, and how assets are traded.

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CFA Equity CFA Equity Presentation Transcript

  • www.edupristine.com Equity Topic Weight: 10%© PristineThis Presentation has been prepared to provide general information about theCompany to whom it is addressed. This Presentation does not purport to contain allthe information. The information provided in this presentation is meant only forthe recipient and is not to be shared with anyone else.
  • Leverage Trades & Margin Requirements  Leverage trades involve buying a security with borrowed funds, brokerage houses keep the stocks as collateral  Initial Margin (IM): The minimum fraction of the purchase price that must be deposited as the trader’s equity.  Maintenance Margin (MM): Minimum margin to be maintained in the margin account • If the equity value falls below the maintenance margin requirement, the buyer is asked to deposit money so that equity value goes to maintenance margin requirements, otherwise the broker will close the position to prevent further losses.  Money deposited to bring the margin account equal to the maintenance margin requirement is called Variation margin (VM) P * (1  Initial Margin) Margin Call Price  For Margin Purchase (1  Maintenance Margin) P * (1  Initial Margin) Margin Call Price  For Short Sale (1  Maintenance Margin)Pristine www.edupristine.com 2
  • Concept Checker  Consider a long position of a ABC stock. The current price of ABC is $100. Mark enters into a leverage buy at the current price of $100. The required initial margin is 30% and the maintenance margin is 20%. Compute the margin account balance for this position after: • $5 decrease in price on Day 1 • $15 decrease in price on Day 2 • $10 increase in price on Day 3 A. $20 B. $10 C. $30Pristine www.edupristine.com 3 View slide
  • Answer C Day Opening Price Daily Balance Variation Balance Change Margin 0 $30 $100 0 $30 (Purchase) 1 $30 $95 ($5) $25 2 $25 $80 ($15) $10 $10 3 $20 $90 $10 $30  The Margin Account Balance after three days is $ 30Pristine www.edupristine.com 4 View slide