Margin Trading: Conclusion
Here's the bottom line on margin trading:
You are more likely to lose lots of money (or make lots of money) when you invest on margin.
Now let's recap other key points in this tutorial:
- Buying on margin is borrowing money from a broker to purchase stock.
- Margin increases your buying power.
- An initial investment of at least $2,000 is required (minimum margin).
- You can borrow up to 50% of the purchase price of a stock (initial margin).
- You are required to keep a minimum amount of equity in your margin account that can range from 25% - 40% (maintenance margin).
- Marginable securities act as collateral for the loan.
- Like any loan, you have to pay interest on the amount you borrow.
- Not all stocks qualify to be bought on margin.
- You must read the margin agreement and understand its implications.
- If the equity in your account falls below the maintenance margin, the brokerage will issue a margin call.
- Margin calls can result in you having to liquidate stocks or add more cash to the account.
- Brokers may be able to sell your securities without consulting you.
- Margin means leverage.
- The advantage of margin is that if you pick right, you win big.
- The downside of margin is that you can lose more money than you originally invested.
- Buying on margin is definitely not for everybody.
- Margin trading is extremely risky.
The difference between the strike price of an option and the ...
A transaction that can cancel out a forward contract that has ...
The underlying equity that an investor is seeking price movement ...
The maximum and minimum values used to indicate where the price ...
The value associated with being able to invest in securities ...
An options hedging strategy that combines a delta hedge and a ...
Find out more about book value of equity per share, what BVPS measures and how to determine what level of BVPS indicates ...
Find out more about the effective interest rate method and how the effective interest method is used to amortize a discounted ...
Find out more about the book-to-market ratio and how to calculate a public company's book-to-market ratio including its intangible ...
Learn what risks to consider before taking a short put position. Shorting puts is a great strategy to earn income in certain ...