Check one: a) Margin trading is Manna from Heaven. b) Margin trading is the
Devil's playground. Whichever you chose will likely depend on what you've heard with respect to
trading stock on margin. If what you know is limited to those daytraders who cleaned up in the
late nineties by placing huge trades (bets?) on margin, then it's manna. On the other hand, if
all you're working with is the October 10, 2008 news that Aubrey McClendon, CEO of Chesapeake
Energy, lost $1.92 billion when he was forced to sell 33.4 million shares of his own company's
stock to meet a margin call, then it's the Devil.
One thing we know for certain: knowledge is power. Will getting a good foundation in margin
trading - and knowing the risks - keep you out of the McClendon camp? Well, it's a start.
Let's explore.
Margin trading, in it's simplest terms, is trading with borrowed capital. The lender in this
case is your broker. You are, in effect, borrowing money from your broker to buy stocks. As with
any cautious lender, there will be a demand for collateral. In this case, the collateral on this
loan from your broker is the investment you make (i.e., the stocks you purchase) with that
money, as well as any additional funds or stocks in your account.
Why do people buy stocks on margin? Is this something that can benefit me? Let's find out.
Margin Trading - Why People Buy Stocks On Margin
Margin trading gives you financial leverage. In simplest terms, financial leverage is... read more...
Trading on margin first requires setting up a margin account with a registered
securities broker, or transitioning an existing cash account into a margin account. Before
taking that step, you should fully understand, and be comfortable with, the inherent risks
associated with a margin account. Among them...
This is one phone call you're going to wish you didn't have to take. But take it you must. It
means you've lost money on one or more stocks. So much money, that you've tripped the "maintenance
margin" percentage and your broker is exercising his contractual rights to have you...
read more...
