How was buying stock on margin profitable?

Answer 1

Buying on the margin means that you borrow some money from your broker in order to buy stock. This is usually an option when you can only afford 18 shares of stock, but you want to get 20 shares. This way, you can pick up more stock than you could have using solely the money in your brokerage account, and either pay back later or have your broker initiate a funds transfer request on your behalf to cover the extra expenses...

Answer 2

That refers to borrowing money from your broker to purchase additional shares of a stock. Most brokers will allow 50% margin which is the legal limit for individuals. So if you have $10,000 in your account and buy $10,000 worth of a stock, you can purchase an additional $10k worth of stocks. You are borrowing the additional money at an interest rate set by your broker. You need to always have a minimum amount of "equity" in your account (current market value of the stocks less the amount you borrowed and still owe). Normally, this is at least 25%. If the stock falls in price so the equity in the account drops below this maintenance equity, you could receive a "margin call" and you will be forced to sell some of your holdings to meet the minimum required.

Hedge funds and other institutions can borrow more than 100% of the value of their holdings. Some funds can be levered 10 to 1 or more.

Many experienced traders will tell you to be careful with margin. It can lead to magnified losses if a trade goes against you.

Answer 3

buying stock for a fraction of its cost and borrowing against future profits

Answer 4

buying stock for a fraction of its cost and borrowing against future profits

Jasmine Adams