| Buying on margin means that you are
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| | on margin. The price of your stock could
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| buying your stocks with borrowed money.
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| | always go down. By law, the brokerage
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| If you are buying stocks outright, you
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| | will not be allowed to let the value of
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| pay $5,000 for 100 shares of a stock that
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| | the collateral (the price of your stock)
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| costs $50 a share. They are yours. You've
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| | go down below a certain percentage of the
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| paid for them free and clear.
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| | loan value. If the stock drops below that
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| But when you buy on margin, you are
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| | set amount, the brokerage will issue a
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| borrowing the money to purchase the
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| | margin call on your stock.
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| stock. For example, you don't have $5,000
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| | The margin call means that you will have
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| for those 100 shares. A brokerage firm
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| | to pay the brokerage the amount of money
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| could lend you up to 50% of that in order
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| | necessary to bring the brokerage firms
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| to purchase the stock. All you need is
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| | risk down to the allowed level. If you
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| $2,500 to buy the 100 shares of stock.
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| | don't have the money, your stock will be
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| Most brokerage firms set a minimum amount
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| | sold to pay off the loan. If there is any
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| of equity at $2,000. This means that you
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| | money left, you will be sent it. In most
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| have to put in at least $2,000 for the
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| | cases, there is little of your original
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| purchase of stocks.
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| | investment remaining after the stock is
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| In return for the loan, you pay interest.
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| | sold.
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| The brokerage is making money on your
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| | Buying on margin could mean a huge
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| loan. They will also hold your stock as
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| | return. But there is the risk that you
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| the collateral against the loan. If you
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| | could lose your original investment. As
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| default, they will take the stock. They
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| | with any stock purchase there are risks,
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| have very little risk in the deal.
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| | but when you are using borrowed money,
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| One way to think of buying on margin is
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| | the risk is increased.
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| that it is often comparable to buying a
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| | Buying on margin is usually not a good
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| home with a mortgage. You are taking out
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| | idea for the beginner or normal, every
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| the loan in the hopes that the value will
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| | day investor. It is something that
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| go up and you will make money. You are in
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| | sophisticated investors even have issues
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| control of twice the amount of shares.
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| | with. The risk can be high. Make sure
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| All you have to see is the additional
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| | that you understand all of the possible
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| profit exceed the interest you have paid
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| | scenarios that could happen, good and
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| the brokerage.
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| | bad.
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| However, there are risks to buying stock
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