What is the stock?
One confusing and potentially risky area of investment involves trading on margin. The margins must meet the federal and stock market instructions for trading margins. Although potentially lucrative, investment in shares can be a great risk, as the investor may end financially responsible for losses.
There are several stock trading requirements. These requirements help alleviate, but do not remove the risks of trading with this type of account. Accounts that can be traded on a margin usually include shares on the National Security Stock Exchange, shares traded on the national market and some shares approved by the Burning Council. Brokers who deal with trading margins usually have detailed information about what shares can be legally traded on the margin. On the other hand, margin shares allow the investor to borrow money from brokerage, often up to 50% of the total purchase of shares. This means that instead of buying shares worth $ 50 (USD) with $ 50, an investor can buy shares worth 100 UBy investing $ 50 and borrow $ 50. Many buyers lead a high risk to lending much less than the permitted amount.
In the ideal situation, buying shares for margin, the investor allows you to enter markets that he could not regularly afford by increasing the purchasing power and thus the potential profits of the investor. For example, if a person buys a non-Margine event worth $ 50 and sells them for $ 70, he earns a profit of $ 20. By using an account on a margin, the same person could buy a $ 100 margin for an investment of $ 50, sell it for $ 140, return a borrowed $ 50 and an interest of about $ 4 and still earned a profit of $ 36.
When the shares are rising, trading margins can be extremely lucrative and double the investor's purchasing power. However, the shares are nothing but predictable, which leads to a serious risk of margin trading. If the above -mentioned stock price was dropped to $ 30, the investor without Margin B was dropped after the purchaseY lost $ 20 from its original investment of $ 50. However, the margin investor is still responsible for the initial borrowed amount plus interest. If shares worth $ 100 drops to $ 60, the debtor would lose $ 44 after repayment of the loan and interest.
Given the high risk, most intermediary companies require investors to maintain a certain amount of cash or collateral of shares to pay for high losses for margins. This amount may vary depending on the amount of investment and brokerage, but often is around 30% of the borrowed amount. If this collateral, called maintenance, falls below the required amount, mediation may usually apply for an immediate deposit that would return the balance to the requicited level. If this deposit, known as a call to a margin, is not executed, the broker has the right to liquidate shares to create a debt without consulting an investor.