Using Margin

Conclusions and Resources

Here's the bottom line on margin trading:

Margin amplifies your returns; both negative and positive. 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.
• You can borrow up to 70% of the purchase price of an eligible stock.
• You are required to keep a minimum amount of equity in your margin account.
• 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 margin in your account falls below zero, 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 everyone.
• Margin trading can be 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.

See also:

"Buying Securities On Margin: Basic Principles" – Disnat Bulletin, September 2005