Your Capital And Margin
January 21, 2008 – 6:22 pmIf you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
If you are getting started with stock trading, you are probably excited about the concept of margin. Margin, when used judiciously, can be a great way to leverage additional funds on winning trades. But if you aren’t careful with your capital, your margin account might collapse, forcing you to sell stocks much earlier than you may have expected. Let’s take a look at managing your margin.
When you begin trading, you’ll need to pay particular attention to your margin requirement, which is $2,000 or 50% of the trade, as set by Reg. T of the Federal Reserve. If you go below this 50% margin requirement, it can trigger a margin call, which could result in your account being liquidated.
Margin accounts are charged interest by the broker, so if you plan on holding a stock for more than a few days on margin, you’ll need to keep this in mind. Generally, margin should only be used for very short term trades.
In future articles we’ll take a look at the three types of margin calls you might get, and how you can avoid a disaster using margin.
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