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Buying Stocks on Margin - What it is and Why You Probably Shouldn't Do it
Submitted By: SB Wise Date: January 21, 2010, 08:04:22 PM Views: 1012
Summary: Buying stocks on margin is a highly risky endeavor typically only done by highly experienced, highly capitalized investors who are many times looking to throw their weight around in the market. Investors new to the concept may not be aware that leverage forex, leverage treasury, and leverage corporate bond accounts are also considered marginable securities or accounts.

Buying stocks on margin is a highly risky endeavor typically only done by highly experienced, highly capitalized investors who are many times looking to throw their weight around in the market. Investors new to the concept may not be aware that leverage forex, leverage treasury, and leverage corporate bond accounts are also considered marginable securities or accounts.

A typical trader is considered to be buying stocks on margin if he or she is basically borrowing a portion of the purchase price of the desired securities from their broker. The amount which can be borrowed varies greatly from one asset class to another. The maximum leverage for a stock trade is two to one (2:1). The available multiplier is slightly higher for (some) corporate bonds, and again a little higher for treasuries.

The maximum margin on non-equities varies depending on which brokerage house has your accounts, but can range from 400:1 on forex trades to 2:1 on corporate bonds. It is not surprising to learn that foreign currency trading is among the most popular trading investments for leveraged investment trading. After all - who wants to be buying stocks on margin at 2:1 leveraging when you have two hundred times as much buying power in the forex market?

It has become far less common to see traders buying stocks on margin because of the high capital requirements, high risk, and high maintenance (in terms of investor attention) needed to make those types of trades pay off. Most people instead typically opt to buy options instead - where they can design their own leverage, execute a trade, and go take a nap if they want to without the threat of a margin call.

People looking for the most bang for their buck typically opt to use leverage forex accounts, where even relatively low capital investors can get a 200:1 leverage ratio, which provides immense buying power in the market.

The other really popular new way to make money day trading is by trading binary options, where investors can make up to 75% return per hour on a select number of highly liquid domestic, foreign, and forex transactions.

Steve B. Wise

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