What is investing on margin?
Investing on margin means that you don’t quite have enough money to buy all the things that you're buying. Back in the 1920’s and the 1930’s, you used to be able to use your stocks as a loan to buy more stocks.
So you might buy a hundred dollars worth of a stock and then you might only five percent and you might borrow 95% of the value against your stocks. And now you're buy another $95.00 and then you used those stocks to buy another.
And so the problem is with very little money you can get a huge portfolio. Now in the 1920’s when the markets were going up, that was great. In 1929 the whole thing fell apart and a lot of people ended owing money on margin and they didn’t have any stock value to end up supporting it.
So nowadays, the margin calls are listed at 50% and you can only borrow about 50% of the value of your portfolio. If your portfolio goes below, if your margin goes above 50% and if they have a margin call and you have so much time where you need to sell something in order to satisfy that loan.
We don’t recommend investing on margins.
Transcription by:
Scribe4you Transcription Services