With Kensington Capital, you can invest in any stock or ETFs (Exchange Trade Funds). Any stock or ETF that trades on the NASDAQ, NYSE (New York Stock Exchange), or AMEX (American Stock Exchange). Some examples are MSFT (NASDAQ), LU (NYSE) and AVD (AMEX).


Do you allow day trading?

Yes. However If you are classified as a pattern day trader (PDT), you are required to maintain a minimum account balance of $25,000 at all times. According to securities regulation, you are considered a pattern day trader if you make more than 3 day trades (see definition below) within a period of 5 business days.


What is a Day Trade?

A day trade is defined as opening and closing (buying and then selling, or short selling and then buying to cover) the same security on the same day.


What are some examples of day trades?

Example 1

9:40 am ET Buy 100 XYZ

2:00 pm ET Sell 100 XYZ = 1 day trade

The XYZ position was opened and closed on the same trading day.


Example 2

9:40 am ET Buy 100 ABC

10:15 am ET Buy 100 MSFT

10:30 am ET Buy 100 ABC

2:00 pm ET Sell 200 ABC = 2 day trades

Two ABC positions were opened and closed on the same trading day. Since the MSFT purchase interrupted the ABC purchases, ABC is separated into two separate positions (for the purpose of counting day trades) thus causing 2 day trades when the client closed all ABC shares purchased that day.


Example 3

9:40 am ET Buy 100 ABC

10:30 am ET Buy 100 ABC

2:00 pm ET Sell 200 ABC = 1 day trade

ABC was purchased twice with no other opening transactions interrupting the purchases. In this scenario, the ABC purchases will count as only one position (for the purpose of counting day trades) and therefore when the client sells, it will only count as 1 day trade.


Example 4 (Options)

9:40 am ET BTO 10 2012Jan21 XYZ C 25 (BTO=Buy To Open)

10:30 am ET BTO 10 2012Jan21 XYZ C 25 (BTO=Buy To Open)

2:00 pm ET STC 20 2012Jan21 XYZ C 25 (STC=Sell To Close) = 1 day trade


Can I buy foreign ordinary shares?

Yes, with our Assisted Broker trading. If you are interested please call 800-123-4567.


Do you offer extended hours trading?

Yes, Kensington Capital does offer extended hours trading. Please speak to your account executive about this.


Can I trade OTC bulletin boards, pink sheets or penny stocks?

Yes. Over-the-counter bulletin board (OTCBB), pink sheets and penny stocks (hereafter OTCBB) can be bought and sold, through you dedicated broker. OTCBB securities usually represent shares of new or small companies which are traded by dealers via manual procedures. Investing in OTCBB securities can be very risky, and investors may lose all or part of their investment in a relatively short period of time. Accordingly, the trading rules for OTCBB securities differ significantly from listed or NASDAQ securities. For example, only limit orders to buy and limit or market orders to sell will be accepted for the regular market sessions. Quotes for OTCBB securities may not be accurate as the securities may trade on a manual basis, and frequently "real-time" quote information, or even firm quotes, may not be available. Investors should also be aware that frequent symbol changes, additions and delistings occur in the OTCBB market. Before placing an order for an OTCBB security, please review the OTCBB Securities Trading Rules. You should also take the time to carefully research the company and examine your investment objectives.

Note: Kensington Capital can not guarantee the accuracy of any quotation information on our site for these securities. You can usually place bulletin board trades on your own using our online system. However, sometimes the information you need may not be available for some thinly traded stocks. You may find it easier to get a current quote or place an order through one of our brokers over the phone call at 800-123-4567. You may not sell short, buy or sell mutual funds, or trade stocks with a market value of less than $10 per share until seven business days after your account application is approved.

To avoid this situation you may want to consider adding margin privileges to your account. With a margin account, the proceeds of a sell order will update your buying power immediately.


Can I trade mutual funds?

Yes. At Kensington Capital you'll have access to many mutual funds.
Before investing in a mutual fund, carefully consider the investment objectives, risks, charges and expenses. For a prospectus containing this and other important information, contact the fund or an Account Executive. Please read the prospectus carefully before investing.


MARGIN

How does margin work?

Buying stocks on margin involves borrowing funds through Kensington Capital’s clearing firm, First Southwest Company and using these funds to buy margin-eligible securities.


What is the minimum account balance necessary to have a margin account?

The account must have a minimum account balance of $2,000 to maintain margin privileges.


Who sets margin requirements?

The Federal Reserve and FINRA both set minimum initial and maintenance margin requirements. Although the NYSE and FINRA require a minimum equity maintenance of 25%, broker dealers are allowed to impose higher equity maintenance requirements. Kensington Capital requires a minimum equity maintenance requirement of 30%.


What are the initial and maintenance margin requirements for purchasing listed securities at Kensington Capital?

The following requirements apply only to securities listed on the NYSE, AMEX, and NASDAQ. OTC Bulletin Board and Pink Sheets stocks are NOT margin eligible.

Add in table

Maintenance requirements may be higher if our clearing firm deems it necessary.


What are the initial and maintenance margin requirements for shorting listed securities at Kensington Capital?

Add in table

Securities valued less than $3 per share are not margin-eligible and therefore may not be sold short.


What happens if my equity is not sufficient to meet the margin maintenance requirements?

Your account will be subject to a margin call if your equity does not meet margin maintenance requirements, and Kensington Capital Trading Margin Department will generally attempt to notify you as a courtesy.

Margin calls are due upon creation of the call. Kensington Capital, along with our clearing firm First Southwest Company, establishes a future due date as a courtesy notice. Kensington Capital in observation of regulatory policy, may sell your securities at any time without consulting you in order to meet the call. Typically, if you do not meet a call by the due date, your account will be considered "In Default" and Kensington Capital may liquidate positions in order to cover all outstanding calls prior to their individual due dates. Depending on market fluctuations, positions may be liquidated for a greater amount than the calls. If Kensington Capital liquidates any of your positions, you will be charged the broker-assisted commission rate.


I just sold some stocks or options in my account. Why is my buying power the same?

This is common in a cash account when a sell order has been placed but has yet to settle. In a cash account, the proceeds of a sell order do not increase your buying power until the trade settles, which is 3 business days after the trade date for stocks (T+3) and 1 business day for options (T+1).


Why did I receive a margin call when I have a cash account?

Cash accounts can receive a type of non-margin call called a "money due" call. This can happen if you make a purchase without sufficient funds in your account, perhaps due to price fluctuations after entering a market order, or due to fees assessed to your account.


Am I always buying on margin in a margin-enabled account?

No. When you purchase securities with a value less than or equal to that of your cash balance, you are not buying on margin, even in a margin-enabled account.


What is a Good Faith Violation?

A Good Faith (GF) Violation is generated in cash accounts when a client purchases a security with unsettled funds and then sells the security prior to settlement of those funds. Three (3) unmet GF Violations in any 12-month rolling period will result in your account being restricted to trading only with settled funds for a period of 90 days. If another GF Violation occurs during the 90-day period, the account may be restricted to all but closing transactions.

Example:
On Monday, customer sells XYZ for $5,000 and holds no additional cash in his account. Sales proceeds do not settle until Thursday.

On Monday, customer buys LMN for $5,000.

On Monday, Tuesday or Wednesday customer sells LMN, prior to the settlement date of XYZ. This results in a Good Faith Violation.

To avoid GF Violations in cash accounts, do not buy a security using unsettled proceeds and sell that same security before the proceeds settle.


OPTIONS

What is a call option?

A call option is an option contract that gives the buyer the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.


What is a put option?

A put option is an option contract that gives the buyer the right (but not the obligation) to sell a stock, bond, commodity, or other instrument at a specified price within a specific time period.


What happens if I am long a call or put option?

If you are long a call option that is in the money at expiration by at least $0.01, you should expect to purchase the underlying shares at the strike price. If you have insufficient funds to cover the purchase, a margin call will be generated on your account and Kensington Capital may force a liquidation of the position at prevailing market prices.

If you are long a put option that is in the money at expiration by at least $0.01, you should expect to have the underlying shares sold short (unless you are long sufficient shares of the underlying stock) in your account at the strike price. You will be required to cover this position before the end of the trading day following expiration. For instance, if shares are sold in your account Friday, you will be required to cover that position the following Monday before 4 PM EST.


What happens if I am short a call or put option?

If you are short a call (stock option) that is in the money, you may be assigned on any given trading day leading up and to the last trading day prior to expiration day. Assignment to a call writer means you will have to sell the specified amount of underlying shares at the strike price. If this is an uncovered call, you will have to buy the underlying stock in the open market at the current market price so you may sell it to a call buyer at the strike price. If you do not have sufficient buying power to afford such a position, you may receive a margin call which can put you at risk of being sold out of that position.

If you are short a put (stock option) that is in the money, you may be assigned on any given trading day leading up and to the last trading day prior to expiration day. Assignment to a put writer means you will have to buy the specified amount of underlying shares at the strike price. If you do not have sufficient buying power to afford such a position, you may receive a margin call which can put you at risk of being sold out of that position.


How do I know if my options will expire, be exercised or assigned?

Check your option holdings frequently: options are considered in the money if the stock price is equal to or greater than $0.01 above or below the strike price depending on whether it is a call or a put. Under the current procedures, if the stock price is greater than or equal to $0.01 at expiration, it may be exercised automatically unless we receive "NOT to exercise" instructions from you by the close of trading on the third Friday of the expiration month. If you are short options, you may be assigned the underlying shares whether or not you want the resulting position(s).


What if I do not have enough buying power to afford the resulting stock position of an exercise or assignment?

Kensington Capital, pursuant to our User Agreement, cannot be exposed to market risk due to positions created in customer accounts and reserves the right to act accordingly. It remains the customer's responsibility to ensure there is sufficient buying power to afford any resulting stock position. If you cannot meet a resulting call, please close your open positions prior to expiration. Kensington Capital reserves the right to liquidate stock or option positions if it deems that sufficient risk to the firm exists. In addition closing a position may result in a loss to the investor, and multi-leg strategies may result in additional commissions, fees and charges.


How do I give exercise or NOT to exercise instructions for my options?

The majority of long equity options positions that expire in the money by $.01 or more will automatically be exercised on the Saturday following the 3rd Friday of that month unless we receive "NOT to exercise" instructions from you by the close of trading on the last trading day before expiration. To instruct us to exercise, please call your dedicated broker detailing which option you would like to exercise. You may give these instructions at any time, except for the last trading day of that particular option contract. These instructions must be received no later than 4:15 pm ET (1:15 pm PT) on the last trading day before expiration.


Will Kensington Capital close my long option positions if I submit "NOT to exercise" instructions?

No. "NOT to exercise" instructions will not be considered as standing instructions to close long option positions. It is the customer's responsibility to address open positions in his account.

For example, if you are long a call or put that is in the money and you send "NOT to exercise" instructions, it is your responsibility to close that option position before it expires. If you do not close the position, it may expire worthless and you may lose the premium you paid for the option.


Where can I find more information about options?

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.
For more information on option contract terms and more, please check out

www.theocc.com
www.cboe.com
www.optionseducation.org