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Why was stock bought on margin considered a risky investment
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∙ 6y ago
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What following investment choices is least risky?
CD's
What are stock margins?
"Margin" is borrowing money from your broker to buy a stock and using your investment as collateral. Investors generally use margin to increase their purchasing power so that they can own more stock without fully paying for it. But margin exposes investors to the potential for higher losses. Let's say you buy a stock for $50 and the price of the stock rises to $75. If you bought the stock in a cash account and paid for it in full, you'll earn a 50 percent return on your investment. But if you bought the stock on margin - paying $25 in cash and borrowing $25 from your broker - you'll earn a 100 percent return on the money you invested. Of course, you'll still owe your firm $25 plus interest. The downside to using margin is that if the stock price decreases, substantial losses can mount quickly. For example, let's say the stock you bought for $50 falls to $25. If you fully paid for the stock, you'll lose 50 percent of your money. But if you bought on margin, you'll lose 100 percent, and you still must come up with the interest you owe on the loan. Margin accounts can be very risky and they are not suitable for everyone. Before opening a margin account, you should fully understand that: * You can lose more money than you have invested; * You may have to deposit additional cash or securities in your account on short notice to cover market losses; * You may be forced to sell some or all of your securities when falling stock prices reduce the value of your securities; and * Your brokerage firm may sell some or all of your securities without consulting you to pay off the loan it made to you. You can protect yourself by knowing how a margin account works and what happens if the price of the stock purchased on margin declines. Know that your firm charges you interest for borrowing money and how that will affect the total return on your investments. Be sure to ask your broker whether it makes sense for you to trade on margin in light of your financial resources, investment objectives, and tolerance for risk
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 does stock 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 an on margin purchase?
A risky technique involving the purchase of securities with borrowed money, using the shares themselves as collateral. Usually done using a margin account at a brokerage, and subject to fairly strict SEC regulations.
What is the economic reason for making a risky investment?
An investment is considered risky if the probability of loss is high. However, risky investments can also produce dramatic gains. So if you want to speculate that a given risky investment will pay off, you have to balance that against the possibility that you will lose some or all of the investment. That's why rash or all-or-nothing investment strategies lead to ruin.
Is bluechip investment risky or safe?
RISKY
How risky are hedage funds?
Hedge funds are considered a risky investment. The reason they are considered risky is because they are a type of fund that is not regulated.
Which is a riskier investment corporate bonds or technology stocks?
Tech Stocks will be generally more volatile and thus considered more risky.
What following investment choices is least risky?
CD's
Why future trading is considered to be more risky than Equity Investment?
Equity investment is an investment in a company by purchasing its stock. While there may be some risk, the company exists and has made a public offering, which indicates some stability. Futures trading involves a to buy or sell a certain commodity (sugar, pork bellies, etc.) on a specified date in the future and at the market-determined price at that time. Both equity investment and futures trading can be considered risky, much like walking a tightrope; the former has a slightly larger safety net below.
Is it risky to invest in cash flow notes?
Cash flow notes can be a risky invfestment. There is no gurantee that you are able to get your initial investment back.
Why was buying on a margine risky?
If the stock has not gone up when the margin call is due, you lose money.
What is the meaning of risky?
If something is described as 'risky' then it entails a moderate degree of danger. Risky is somewhere in between 'safe' and 'dangerous' on a scale of "cause for concern" regarding any activity.... be it anything from sport or investment.
What are stock margins?
"Margin" is borrowing money from your broker to buy a stock and using your investment as collateral. Investors generally use margin to increase their purchasing power so that they can own more stock without fully paying for it. But margin exposes investors to the potential for higher losses. Let's say you buy a stock for $50 and the price of the stock rises to $75. If you bought the stock in a cash account and paid for it in full, you'll earn a 50 percent return on your investment. But if you bought the stock on margin - paying $25 in cash and borrowing $25 from your broker - you'll earn a 100 percent return on the money you invested. Of course, you'll still owe your firm $25 plus interest. The downside to using margin is that if the stock price decreases, substantial losses can mount quickly. For example, let's say the stock you bought for $50 falls to $25. If you fully paid for the stock, you'll lose 50 percent of your money. But if you bought on margin, you'll lose 100 percent, and you still must come up with the interest you owe on the loan. Margin accounts can be very risky and they are not suitable for everyone. Before opening a margin account, you should fully understand that: * You can lose more money than you have invested; * You may have to deposit additional cash or securities in your account on short notice to cover market losses; * You may be forced to sell some or all of your securities when falling stock prices reduce the value of your securities; and * Your brokerage firm may sell some or all of your securities without consulting you to pay off the loan it made to you. You can protect yourself by knowing how a margin account works and what happens if the price of the stock purchased on margin declines. Know that your firm charges you interest for borrowing money and how that will affect the total return on your investments. Be sure to ask your broker whether it makes sense for you to trade on margin in light of your financial resources, investment objectives, and tolerance for risk
How do you calculate Excess Returns?
To calculate excess returns, subtract the risk-free rate of return from the actual return on the investment. Excess returns show the additional return earned above the risk-free rate, which represents the compensation for taking on additional risk. It is commonly used to evaluate the performance of an investment or portfolio.
How do you spell speculate?
That is the correct spelling of the verb speculate(suggest, hypothesize, or make a risky investment).
