The firm is of the opinion that the use
of margin, and most types of options transactions, are not suitable for
all (or even most) investors. Consequently, the firm's policies restrict
the ability of an individual or entity to open a margin account and to
use option transactions as investment tools significantly more than many
of our competitors do.
In order to open a margin account an individual
or entity must have sufficient prior investment experience (in the sole
opinion of PICI's principals) and meet certain net worth standards.
Generally the opening of a margin account requires a net worth of at least
$80,000 ($50,000 EACH for joint tenants who are not husband and
wife), a minimum opening balance of at least $30,000 and the maintenance
of a minimum equity of at least $15,000 at all times. Additionally
the use of either margin or option transactions as investment tools require
the completion of all financial disclosures on all new account documents.
The firm requires that all account obligations are met by Federal funds
wire transfer. Finally, we reserve the right to restrict any account or
group of accounts from any transactions or series of transactions and
additionally, PICI reserves the right to impose higher maintenance requirements
on any account or group of accounts. The Firm's current standard
maintenance requirement is 30% and it is necessary to bring the maintenance
level back up to 35% if it falls below 30% (and back to 40% in the event of a
"concentrated position").
MOST FORMS OF
MARGIN AND OPTIONS TRANSACTIONS ARE HIGH RISK, WHEREIN AN INVESTOR COULD
LOSE A SIGNIFICANT PORTION (OR EVEN ALL) OF THEIR CAPITAL.
Betting the Ranch: Risking
Your Home of Buy Securities.
With a rising stock market, record low
interest rates, and large gains in home value, some investors have taken out new
mortgages, refinanced, or obtained line-of-credits secured by their homes for
the specific purpose of investing in securities. The hope
is that the investment will not only pay the mortgage, but also generate additional income. Unfortunately, it doesn’t always
work out that way.
PICI prohibits this practice and is concerned that
investors who must rely on investment returns to make their mortgage payments could end up defaulting on their home loans if their investments decline and they are unable to meet their monthly mortgage payments. In short, investors who bet the ranch could
lose it.
Your Risk is Compounded. There is risk to
principal when you invest in virtually any security. Taking money out of your
house to buy securities compounds your risks for the following reasons:
-
When
you buy securities with mortgage money, you are investing with borrowed funds.
While this increases your buying power, it also increases your exposure to
market risk, similar to buying securities on margin. The difference is your
mortgage loan is likely to be greater than any amount a securities firm would
loan you on margin. Investing borrowed mortgage money amounts to a huge bet
that the investment will increase.
-
Unlike
investing with savings, when you invest with mortgage money, you stand to lose
more than your principal if the investment goes sour. You can lose the
collateral supporting the loan – namely your house. Even if you don’t lose your
house, you could lose the equity in your home that may have built up over a
considerable period of time.
-
You
may put your money in higher risk investments than you might normally select, in
an effort not only to match the rate of your home loan but in the hopes of
surpassing this rate. Furthermore, with so much at stake, if a given investment
does poorly, you may feel compelled to move your investment into even more risky
investments to make up the difference, further jeopardizing your home, credit
standing, and overall financial health.
FOR FURTHER INFORMATION ON MARGIN
ACCOUNTS THE FIRM RECOMMENDS THAT YOU VIEW THE FOLLOWING DOCUMENTS:
PICI
CUSTOMER INFORMATION BROCHURE
HTS
MARGIN ACCOUNT REQUIREMENTS
FOR FURTHER INFORMATION ON OPTIONS ACCOUNTS
THE FIRM RECOMMENDS THAT YOU VIEW THE FOLLOWING DOCUMENT:
CBOE
DISCLOSURE
YOU CAN FIND MORE INFORMATION BY VISITING:
THE CHICAGO BOARD OPTIONS EXCHANGE
