Have you ever been in a “margin trading box corner” just because of a bear market? I bet many of you have one time or another faced such a situation. Today I want to talk about trading pitfalls in stock trading. Many so called investors in the market are really sweating it out in making the killing they hear so much about. To many of such investors trading is all about winning and if such winning refuse to come, they get frustrated and eventually they might place a trade that might wipe their portfolio off.
Some people in their attempt to increase their stock market profits will go on margin i.e. borrowing from their stock 마진거래 brokerage firm to continue trading. The margin rule gives leverage to allow you to borrow against your stock as collateral.
For example if you own $5000 worth of stock some brokerage firm will give you an additional power to buy an additional worth or $5000 stock.
Understanding the crash of the 1929 was traced to the liberal use of margin facilities. At the time investors were allowed to put 10% down as margin, at the market peak people with little or no asset were buying stocks 10 to 20 times their net worth with just paper asset backing up their stock purchase, so it was inevitable that the market went crashing.
As the market began its free fall investor’s scramble for cash to cover their margin loans. Those who didn’t have enough money were forced to sell their stocks at huge losses causing the market to drop even further. After the crash, the government went further to increase the margin requirement to 50%but this was too late to save thousand of investors who have lost everything
You don’t need a market crash to get into trouble with margin all it take is one losing stock.you must know that when the value of your securities dropped below 30% the brokerage firm come with their dreaded margin call demanding that you pay off the loan immediately.
And if you can’t meet the margin requirement the brokerage will immediately sell your stocks at current price
The biggest advantages of margin is that you use other peoples money to increase your profits.if the prices of your stock rises faster than the amount of interest you pay to the brokerage it’s a sweet thing for investors. And its called leveraging.although you have to pay interest on the money you borrow, the rates are lower than your credit cards.