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Margin means you're borrowing money to buy stock. It's also one of the few ways you can lose more in the stock market than you invested in the first place.
Buying on margin allow people to buy more stocks with only a fraction of the cash needed to buy those stocks. These allowed more people to invest in the stock market that would not afford to come up with the full cash to buy the stocks in question.
buying on margin A+
There is nothing wrong in buying stocks on margin. What the investor must recognize is that there is more risk involved. Aside from the purchased stocks going down, the added burden is having to pay interest on the borrowed funds or the "margin". The other danger is that an investor using margin can buy more stocks. Over speculation can either vastly be beneficial or be a personal income disaster.
The biggest reason for the stock market crash was margin trading. It's not the ONLY reason for the crash, but it's the biggest. Margin trading is where an investor buys stock with borrowed money. In the 1920s margin trading was unregulated. If you were a really good stock picker and you could convince your broker to loan you 90 percent of the sale price on this super hot stock you wanted to buy a million shares of, it was perfectly legal to do it. Let's talk of maintenance margin. When you buy on margin you have to maintain a certain amount of equity in your account - cash, stocks, pig futures, whatever. If the value of your equity drops below that maintenance margin value you have to put more money in your account. In 1929 the demand to put more money in was called the Broker's Call; today it's a Margin Call but it's the same thing: get down here with a lot of cash in your briefcase or we'll close your account. When stocks started dropping a lot of broker's calls were made to people whose entire net worth was in stocks bought on margin. And a lot of THOSE people were banks, who were leveraged up to their necks in margin-bought stocks.
Margin means you're borrowing money to buy stock. It's also one of the few ways you can lose more in the stock market than you invested in the first place.
Margin means you're borrowing money to buy stock. It's also one of the few ways you can lose more in the stock market than you invested in the first place.
Buying on margin allow people to buy more stocks with only a fraction of the cash needed to buy those stocks. These allowed more people to invest in the stock market that would not afford to come up with the full cash to buy the stocks in question.
buying on margin A+
There is nothing wrong in buying stocks on margin. What the investor must recognize is that there is more risk involved. Aside from the purchased stocks going down, the added burden is having to pay interest on the borrowed funds or the "margin". The other danger is that an investor using margin can buy more stocks. Over speculation can either vastly be beneficial or be a personal income disaster.
When investors could buy stocks for as little at 10% down-payment and then when the stock rose in price they could sell it and make a profit.
To invest in Indian stock market and earn profit, buy high quality stocks, and within its margin of safety.
The biggest reason for the Stock Market crash was margin trading. It's not the ONLY reason for the crash, but it's the biggest. Margin trading is where an investor buys stock with borrowed money. In the 1920s margin trading was unregulated. If you were a really good stock picker and you could convince your broker to loan you 90 percent of the sale price on this super hot stock you wanted to buy a million shares of, it was perfectly legal to do it. Let's talk of maintenance margin. When you buy on margin you have to maintain a certain amount of equity in your account - cash, stocks, pig futures, whatever. If the value of your equity drops below that maintenance margin value you have to put more money in your account. In 1929 the demand to put more money in was called the Broker's Call; today it's a Margin Call but it's the same thing: get down here with a lot of cash in your briefcase or we'll close your account. When stocks started dropping a lot of broker's calls were made to people whose entire net worth was in stocks bought on margin. And a lot of THOSE people were banks, who were leveraged up to their necks in margin-bought stocks.
The biggest reason for the stock market crash was margin trading. It's not the ONLY reason for the crash, but it's the biggest. Margin trading is where an investor buys stock with borrowed money. In the 1920s margin trading was unregulated. If you were a really good stock picker and you could convince your broker to loan you 90 percent of the sale price on this super hot stock you wanted to buy a million shares of, it was perfectly legal to do it. Let's talk of maintenance margin. When you buy on margin you have to maintain a certain amount of equity in your account - cash, stocks, pig futures, whatever. If the value of your equity drops below that maintenance margin value you have to put more money in your account. In 1929 the demand to put more money in was called the Broker's Call; today it's a Margin Call but it's the same thing: get down here with a lot of cash in your briefcase or we'll close your account. When stocks started dropping a lot of broker's calls were made to people whose entire net worth was in stocks bought on margin. And a lot of THOSE people were banks, who were leveraged up to their necks in margin-bought stocks.
because ur head is bigg :)
The question of whether buying stocks on margin eventually leads to severe market pullbacks has been the subject of intensive debate. Bull markets are typically associated with rising margin debt as Investors buy stocks on margin to leverage gains through the use of debt. The increased stock buying permitted by margin debt contributes to the strength and longevity of a bull market but this reverses during market pullbacks if investors receive margin calls and are forced to liquidate stocks. Margin buying by itself is not a dangerous practice and there have been prolonged periods during which margin debt remained at high levels and the stock market continued higher. The problem associated with margin debt is that a sudden adverse macro economic event that panics investors into selling causes prices to drop which can put margin buyers into a negative equity position. At this point the forced liquidation of stocks due to margin calls that cannot be met results in a self perpetuating event whereby lower prices force more selling which in turn causes further price declines. It can therefore be argued that margin debt per se does not cause a market selloff but can result in a steeper price decline than would have occurred if margin debt did not need to be liquidated.
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