Brokerage Specialty Accounts

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Brokerage Specialty Accounts

Some types of transactions, due to their nature and inherent risk, have to be executed within special types of brokerage accounts. One such transaction is arbitrage, which is the simultaneous purchase and sale of the same or equivalent security on two different markets. This is typically done in an attempt to profit from temporary price differences on the security in the two separate markets. Arbitrage is a very risky transaction, and is therefore traded in a special type of margin account known as a special arbitrage account.

Things To Know

  • Arbitrage must be done in a special type of margin account.
  • The special miscellaneous account is used in margin trading.

The special miscellaneous account

Another unique account type, which is directly related to margin trading, is the special miscellaneous account, or SMA. Simply put, an SMA is a kind of margin sub-account through which a margin trader can keep track of his or her current borrowing power. As securities that have been bought or sold on margin fluctuate in value from day to day, the trader may have more borrowing power or may be required to place more money into the account. Either way, this daily valuation is done through the SMA.