6) Margin Trading: Conclusion

Margin trading can be compared to a gamble. It’s either you make lots of money, or lose all of it. But, usually the odds are not in your favor.

These are the highlights of this tutorial:

  • Margin trading, or buying on margin, involves borrowing money from a broker to increase your buying power in purchasing stock.
  • The initial investment required to open a margin account is at least $2,000 (minimum margin).
  • You can borrow up to 50% of the purchase price of a stock (initial margin).
  • A minimum amount of equity in your margin account is required, and this can range from 25% – 40% (maintenance margin).
  • Marginable securities act are made as collateral for the loan. Interests have to be paid, like any other loan, but it can be charged to your account.
  • Not all stocks can be bought on margin.
  • A margin call happens when the equity in your account falls below the maintenance margin.
  • When a margin call happens, you have to add more funds to your account or sell stocks to pay off the debt.
  • Your securities may be sold by the brokerage without first consulting you.
  • Margin is leverage.
  • If executed properly, you can profit a lot from margin trading.
  • Buying on margin is extremely risky. You can lose more than your original investment.
  • Margin trading is not for the beginners.

This tutorial is meant only as an educational guide and not as an advice for margin trading.