margin trading


Practice of buying stock with money borrowed from the broker. In this arrangement, the investor makes a cash down payment (called the margin) with the broker and can purchase stocks worth about twice the cash amount. The broker charges interest on this loan (in addition to the commission on each buy/sell trade) and the investor has to keep the entire stockholding with the broker as collateral. Also, the investor has to put up additional cash in case the value of the stockholding falls below a certain amount. Margin trading is a double-edged sword - it cuts both ways. If the stock price rises, the investor makes twice as much profit as with his own cash only. Similarly, if the stock price falls, the investor loses twice the amount. In slang, this practice is called 'investing on steroids.'

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The margin trading strategy of the investor was a high risk strategy that has historically paid off well for the investor.

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The stock market is a tough game especially the minor details of analysis and watching the charts. You must know margin trading.

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The brokerage house specifies minimum net worth requirements for investors utilizing margin trading due to the inherent risks associated therewith.

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