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 ratio of ceded insurance balances to policyholders’ surplus. ...
An announcement by an investor who holds a security that he or ...
A company that owns or controls two or more banks. Mutlibank ...
A type of strategy regarding a put option, which is a contract ...
To maximize potential returns for certain levels of risk (while ...
A u-shaped pattern that develops when an option’s implied volatility ...
Understand the basics of market capitalization and enterprise value, how they measure company value and how they differ in ...
Understand the definitions of market capitalization and revenue, how each is calculated and how each reflects the value of ...
Understand the difference between operating income and net income, including the calculations and interpretations of each ...
Learn the differences between real estate investment trusts, or REITs, and exchange-traded funds, or ETFs, to see how the ...