Streaming Level II stock quotes. Any stock, options, or futures symbols displayed are for illustrative purposes only and are not intended to portray a recommendation to buy or sell a particular security. Everything you always wanted to know about trading options New in: Gift Pack. For more information, please read the Characteristics and Risks of Standardized Options and Risk Disclosure Statement for Futures and Options before you begin trading options. Businesses sell shares of stock to investors as a way to raise money to finance expansion, pay A position will be taken, dependent on whether the tradf says yes or no to the given price.

A haircut is the difference between prices at which a market maker can buy and sell a security. The term comes from the fact that market makers can trade at such a thin spread. A haircut can also refer to the percentage by which an asset's market value is reduced for the purpose of calculating capital requirementmargin and collateral levels. In the financial world, a haircut refers to a negative spread between either the buying and selling prices of a security or the lower-than-market value placed on a security that is being used as collateral.

The haircut is expressed as a percentage of the markdown between the two values. When they are used as collateral, securities are generally devalued, since a cushion is required by the lending parties in case the market value falls. When collateral is being pledged, the degree of the haircut is determined by amount of associated risk to the lender. These risks include any variables that may affect the value of the collateral in the event that the lender has to sell the security due to a default by the borrower.

Variables that may influence that amount of a haircut include price, credit and liquidity risks of the collateral. Generally speaking, price predictability and lower associated risks result in compressed haircuts, as the lender has a high degree of certainty that the how to trade option hair amount of the loan can be covered if the collateral must be liquidated.

For example, Treasury bills are often used as collateral for overnight borrowing arrangements between government securities dealers, which are referred to as repurchase agreements repos. In these arrangements, haircuts are negligible due to the high degree of certainty on the value, credit quality and liquidity of the security, especially over a short time frame. Securities that are characterized by volatility and price uncertainty, on the other hand, have steep haircuts when used as collateral.

Penny stockswhich pose price, volatility and liquidity risks, cannot be used as collateral in margin accounts. Term Of The Day A regulation implemented on Jan. Tour Legendary Investor Jack Bogle's Office. Louise Yamada on Evolution of Technical Analysis. Financial Advisors Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. Borrowing Power Of Securities.

3 Keys to Trading Options In A Small Account

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