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In addition to the 50 initial margin requirement the federal reserve also requires a maintenance margin of 25. If you want to buy a stock immediately but can t get cash into your account for a few days then a margin account makes what amounts to a short term margin loan possible.

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If the value of the house rises to 120 000 and you sell.

Buying stocks on margin. You must have 25 equity in your margin stocks at all times. Buying on margin involves getting a loan from your brokerage and using the money from the loan to invest in more securities than you can buy with your available cash. Invest 150 000 in at t stock which would.

Invest 110 000 in at t stock which would generate 7590 of forward dividend income. For example 10 percent down and 90 percent financed. So if you borrow 10 000 to buy stocks at a retail broker they might charge you 4 interest on that every year or 400 a year.

You re borrowing money from a broker to buy stocks and you pay interest on the margin. Buying stock on margin is similar to buying a house with a mortgage. Investors generally use margin to increase their purchasing power so that they can own more stock without fully paying for it.

The stock falls to 10 per share. Buying on margin refers to the initial or down payment made to the broker for the asset being purchased. As is the case anytime you borrow to invest buying stock on margin can boost your profit when you re right and sting badly when you re wrong.

If you buy a house at a purchase price of 100 000 and put 10 percent down your equity the part you own is 10 000 and you borrow the remaining 90 000 with a mortgage. Margin debt scenario 1. Invest 100 000 in at t stock and generate 6900 in forward dividend income.

Margin buying strategy 2. Buying on margin is generally a good idea only if you re a highly risk tolerant investor. The portfolio now has a market value of 13 320 10 per share x 1 332 shares 10 000 of that is cash from the margin loan 3 320 or 25 of the margin loan is the investor s equity.

This is a serious problem. Trading on margin is basically using the broker s borrowed money. Another risk of purchasing stocks on margin is the dreaded margin call.

High yield arbitrage baseline case. Margin is borrowing money from your broker to buy a stock and using your investment as collateral. Buying on margin is the purchase of an asset by using leverage and borrowing the balance from a bank or broker.