Stock Margins Can Make or Lose You A Lot of Money
You can use someone else's money to leverage your capital for stock purchases. That is buying on margin and is the same as buying other things on credit. The difference comes to the control you have over your investment - with the stock market you are at the whims of the day-to-day market fluctuations. Many of the recent financial problems drove the market down and therefore lost money for those who held their stock on margin. These circumstances left many stocks at all time slows.
Cash is still king when it comes to purchasing stock
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.
Buying on Margin
When you buy stocks on margin, you are requesting a loan for the money to purchase those stocks. In return for the loan from the brokerage firm, you will pay interest on that loan. The brokerage firm is virtually making money on your loan and will hold your stocks as collateral against the loan. If you do not pay the firm back, they sell the stocks. In short they have little risk involved in loaning you the money for the stocks. On the other hand, you have to see to it that the stocks you select make enough in profits to not only put money in your pocket but to pay the loan back to the brokerage firm.
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.
Margin/Cash - so which is the best way?
It comes down to your mindset when it comes to risk. If you will get ulcers worrying about the money you owe on margin it might be a good idea to stay out of the market all together, or buy mutual funds and let someone else worry about the return. Paying cash leaves you in a more flexible position while the margin gives you greater potential. The most important thing is to do your research and invest with your head not your heart. - 23212
Cash is still king when it comes to purchasing stock
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.
Buying on Margin
When you buy stocks on margin, you are requesting a loan for the money to purchase those stocks. In return for the loan from the brokerage firm, you will pay interest on that loan. The brokerage firm is virtually making money on your loan and will hold your stocks as collateral against the loan. If you do not pay the firm back, they sell the stocks. In short they have little risk involved in loaning you the money for the stocks. On the other hand, you have to see to it that the stocks you select make enough in profits to not only put money in your pocket but to pay the loan back to the brokerage firm.
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.
Margin/Cash - so which is the best way?
It comes down to your mindset when it comes to risk. If you will get ulcers worrying about the money you owe on margin it might be a good idea to stay out of the market all together, or buy mutual funds and let someone else worry about the return. Paying cash leaves you in a more flexible position while the margin gives you greater potential. The most important thing is to do your research and invest with your head not your heart. - 23212
About the Author:
Richard Moran is a Financial Consultant and writer for Money Helpers. The site contains 100's of articles, charts, and calculators to assist you in your financial well-being. All the parts of the site are free and it is updated on an almost daily basis. If you are looking for any financial aids or products they can be found on Money Helpers.
posted by X - Men @ 4:21 AM
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