Polar Investment Counsel, Inc.

Independent Securities & Futures Brokers

Member: FINRA, NFA, MSRB, SIPC

Home Office:  Thief River Falls MN


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Margins & Options

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  

 

 

 

 

 

 

CLICK HERE TO VIEW THE PICI CUSTOMER INFORMATION BROCHURE

 

Securities Offered Through:

Polar Investment Counsel, Inc.

Member FINRA, NFA, MSRB, SIPC

Home Office: Thief River Falls MN

www.polarinvest1.com


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