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What was the problem with purchasing stocks by buying on margin?
Wiki User
∙ 10y ago
Buying on margin makes purchasing stocks even more risky because if the value of the stock goes down you have to repay the difference to the creditor. Ièll give an example to explain a bit better. You run a bank that is buying on margin at a rate of 33 to 1 (you have borrowed 33x more than you own). If you were to invest all of your leveraged capital into a stock even a 3% fluctuation (loss) would cause your company to be bankrupt, since 3% loss x 33 = 99% (of the total value of your company). Also if you were to gain money you are also paying the interest on your investments so your gains are reduced. I hope that helps.
Wiki User
∙ 10y ago
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Buying stocks on credit is called?
margin
The purchase of stocks and bonds is?
buying on margin
Buying on margin was a method of buying stocks?
with mostly borrowed money
What does stocks on margin mean?
05/08/08 Buying on margin means that you are buying your stocks with borrowed money_______________________________________________________________It means that you've borrowed money to finance your stock purchase. This is very risky and may lead to a margin call if the share price declines.
What is wrong with buying stock on margin?
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.
Buying stocks on credit is called?
margin
The purchase of stocks and bonds is?
buying on margin
Buying on margin was a method of buying stocks?
with mostly borrowed money
What does stocks on margin mean?
05/08/08 Buying on margin means that you are buying your stocks with borrowed money_______________________________________________________________It means that you've borrowed money to finance your stock purchase. This is very risky and may lead to a margin call if the share price declines.
Buying stocks on the chance of a quick profit without considering risks is known as?
buying on margin.
The practice of buying stocks with an initial down payment of only 10 of the stock price was known as?
buying on margin
When would an investigator not want to purchase stocks by buying on margin?
When he anticipate high volatility as it may lead to squaring of his stocks or positions due to decrease in minimal margin to support the position.
Explain why buing on margin can be a profitable system?
Buying on margin is profitable in a bull market especially when the stocks pay a high dividend.
What is wrong with buying stock on margin?
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 practice of buying stocks with an initial down payment of only 10 percent of the stock price was known as?
buying on margin
What is buying stocks with loans from brokers called?
This is called Margin Loan or Margin Buying. Attention! Please don't just put smiley faces, it's annoying when someone needs the answer!
Witch key problem led to Great Depression?
The key problem which led to the Great Depression, was the stock market. Because many investors began to buy stocks on margin. Which technically meant that the investor was "buying on credit," or in other words buying with money they do not have.
