Is Margin The Best Way To Make Money With Stocks?
You can use someone else's money to leverage your capital for stock purchases. That is buying on margin and is the same as buying other things on credit. The difference comes to the control you have over your investment - with the stock market you are at the whims of the day-to-day market fluctuations. Many of the recent financial problems drove the market down and therefore lost money for those who held their stock on margin. These circumstances left many stocks at all time slows.
Just Pay For the Stock You Buy
When you initially open a brokerage account most stock firms will make you pay for your initial purchase. Most require a minimum equity of $2000 before they will even discuss any margin purchases. Remember unless you are paying cash there will be interest charges due on any stock you buy on margin. Therefore, in order to make a profit not only does the stock have to go up in value enough to cover your investment and the firms charges, but you will also have to cover the interest you have paid over the time you have owned the shares. Most times unless you are a market maven you will come out way ahead using cash to purchase your stock.
Using A Brokers' Margin System
In the margin situation the brokerage house is basically acting as a bank and loaning you the money to purchase the stock. All this is done only on paper of course. If for any reason you don't keep up with the interest payments the broker merely will take the ownership of the stock back, and you may still owe them money, even if the stock did go up. There is very little risk for the brokerage, although many did lose a lot of money in the recent stock market crash. However, even with that most of the money lost was not from marginal stocks but from more exotic forms of investment.
The Real Magic Is Knowing What Stock To Buy
Realistically, if you pick all stocks that go up you are going to make money. Many people have a feel for the market any make their living doing just that. Once you get into margin buying the market becomes more than just a simple investment. You can no longer buy a stock and look in the Sunday paper to see how you did the past week. The potential for loss is high, and you may have to "bite the bullet" and sell a stock before you lose too much on it. Most successful investors use margins sparingly, many times only when they have good knowledge that a stock will rise significantly in the short term.
On Margin or Outright
Making an investment in the stock market with someone elses money is not recommended, unless you can ensure that the stocks you buy are going to go up in value. Of course we all know this is impossible to do because of the nature of the market. Outright purchasing of stocks is the optimal way to invest. Buying them outright puts all the profits in your pocket and then allows you to reinvest those profits into other stocks. - 23204
Just Pay For the Stock You Buy
When you initially open a brokerage account most stock firms will make you pay for your initial purchase. Most require a minimum equity of $2000 before they will even discuss any margin purchases. Remember unless you are paying cash there will be interest charges due on any stock you buy on margin. Therefore, in order to make a profit not only does the stock have to go up in value enough to cover your investment and the firms charges, but you will also have to cover the interest you have paid over the time you have owned the shares. Most times unless you are a market maven you will come out way ahead using cash to purchase your stock.
Using A Brokers' Margin System
In the margin situation the brokerage house is basically acting as a bank and loaning you the money to purchase the stock. All this is done only on paper of course. If for any reason you don't keep up with the interest payments the broker merely will take the ownership of the stock back, and you may still owe them money, even if the stock did go up. There is very little risk for the brokerage, although many did lose a lot of money in the recent stock market crash. However, even with that most of the money lost was not from marginal stocks but from more exotic forms of investment.
The Real Magic Is Knowing What Stock To Buy
Realistically, if you pick all stocks that go up you are going to make money. Many people have a feel for the market any make their living doing just that. Once you get into margin buying the market becomes more than just a simple investment. You can no longer buy a stock and look in the Sunday paper to see how you did the past week. The potential for loss is high, and you may have to "bite the bullet" and sell a stock before you lose too much on it. Most successful investors use margins sparingly, many times only when they have good knowledge that a stock will rise significantly in the short term.
On Margin or Outright
Making an investment in the stock market with someone elses money is not recommended, unless you can ensure that the stocks you buy are going to go up in value. Of course we all know this is impossible to do because of the nature of the market. Outright purchasing of stocks is the optimal way to invest. Buying them outright puts all the profits in your pocket and then allows you to reinvest those profits into other stocks. - 23204
About the Author:
Richard Moran is a Business Consultant and writer for Money Helpers. The Blog contains 100's of articles, charts, and calculators to aid you in your Business well-being. All the aspects of the Blog are free and it is updated on an almost daily basis. If you are looking for any Business information or products they can be found on Money Helpers.
posted by X - Men @ 7:30 AM
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