I Have a Hunch About A Stock - Should I Margin It ?
Some people who invest into the stock market use other peoples money to purchase those stocks. It is called buying on margin and is equivalent to purchasing a home on credit. The main difference between the two is you can improve your homes value by updating and remodeling and you rely solely on the stock market in order to pay off your loan on marginal stock purchases. The recent stock market problems were caused in part by marginal stock holders whose investors became nervous and demanded their money before the stocks could make a profit. This drove the price of these stocks to all time lows.
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.
Regardless of How You Pay You Still Must Know What Stocks To Buy
One way of ensuring you can pay back the loan on your investments is to know your stocks. You should study your stocks before making a purchase. It is important to know how they have been effected by other aspects of the market, how often they drop, how long they remain on a rise and what the average rise for them is. By studying the stocks you want to invest in, you may find that you dont need to borrow money in order to invest.
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. - 23311
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.
Regardless of How You Pay You Still Must Know What Stocks To Buy
One way of ensuring you can pay back the loan on your investments is to know your stocks. You should study your stocks before making a purchase. It is important to know how they have been effected by other aspects of the market, how often they drop, how long they remain on a rise and what the average rise for them is. By studying the stocks you want to invest in, you may find that you dont need to borrow money in order to invest.
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. - 23311
About the Author:
Richard Moran is a Business Consultant and maven for Money Helpers. The site contains hundreds of articles, charts, and calculators to aid you in your Business health. All the aspects of the site are free and it is updated on an almost daily basis. If you are searching for any Business information or products they can be found on Money Helpers.
posted by Mr. Forex at
3:18 AM
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