Account Features

Question 1

Long margin account

Answer 1

Customers purchase securities and pay interest on money borrowed until the loan is paid.

Question 2

Short margin account

Answer 2

Stock is borrowed then sold short, enabling the customer to profit if its value declines. All short sales must be executed through and accounted for i a margin account.

Question 3

Hypothecation

Answer 3

The pledging of customer securities as collateral for margin loans. A hypothecation agreement must be signed by a customer who wants to open a margin account.

Question 4

Rehypothecation

Answer 4

A BD borrows the money from the bank, the loan from the bank to the broker is also secured by a portion of the stocks purchased on margin. After customer pledges securities to to the BD by signing the margin agreement, the BD rehypoethcates (repledges) the securities as collateral for a loan from the bank. Overseen by Federal Reserve Regulation U.