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.
We must emphasize that this tutorial provides a basic foundation for understanding margin. It is meant to serve as an educational guide, not as advice to trade on margin.






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