Some people who invest into the stock market use other peoples money to purchase those stocks. It is called buying on margin and is equivalent to purchasing a home on credit. The main difference between the two is you can improve your homes value by updating and remodeling and you rely solely on the stock market in order to pay off your loan on marginal stock purchases. The recent stock market problems were caused in part by marginal stock holders whose investors became nervous and demanded their money before the stocks could make a profit. This drove the price of these stocks to all time lows.
Buying Stock Outright
When you buy stocks outright you pay for your stocks at the time you purchase them. For example, you may purchase one hundred shares of stock at fifty dollars per share costing you five thousand dollars. It is over and done, you own the stocks, and they are free to earn you the money instead of earning someone else money. Since most brokerage firms require you to have a minimum equity of two thousand dollars to begin with before buying on margin, it simply makes sense to drop the number of shares you purchase and own them outright.
You Know It's a Sure Thing and Want 10,000 shares rather than 1,000
When you borrow money to buy a car you pay back what you borrowed, plus an interest charge. This is the same with marginal stock. You are borrowing part (usually around 80%) of the stock price from the broker. For this service the broker will charge you interest. If you buy a $100 stock you give the broker $20 and borrow $80. You then pay interest on that $80 until you sell. So theoretically, If the stock goes up to $150 you must give the broker back their $80 plus the interest for the time you held the stock. The great part in using margin (if the stock goes up) is making a $20 investment you have gotten your $20 back plus a $50 profit minus whatever interest is due. Many day traders use this method to make a lot of money by buying and selling stocks quickly - sometimes buying in the morning and selling in the afternoon - hence day trading.
Knowing the Stocks you Buy
If your interested in margins the best advice is to know your stocks. One bad bet can cost a lost of money. Conversely, it can make you a bundle. History can help with a stocks' rises and falls but circumstances of a particular day can affect a solid stock to a great extent. Think what would happen to the health insurance provider's stock if the government announced universal health care for the citizens of the United States. Everything affects the stock prices - politics, weather, the moods of the people. When a few of the banks borrowed from the government most bank stock whet down, even if they were not borrowers from the fed.
On Margin or Outright
Making an investment in the stock market with someone elses money is not recommended, unless you can ensure that the stocks you buy are going to go up in value. Of course we all know this is impossible to do because of the nature of the market. Outright purchasing of stocks is the optimal way to invest. Buying them outright puts all the profits in your pocket and then allows you to reinvest those profits into other stocks. - 29970
Buying Stock Outright
When you buy stocks outright you pay for your stocks at the time you purchase them. For example, you may purchase one hundred shares of stock at fifty dollars per share costing you five thousand dollars. It is over and done, you own the stocks, and they are free to earn you the money instead of earning someone else money. Since most brokerage firms require you to have a minimum equity of two thousand dollars to begin with before buying on margin, it simply makes sense to drop the number of shares you purchase and own them outright.
You Know It's a Sure Thing and Want 10,000 shares rather than 1,000
When you borrow money to buy a car you pay back what you borrowed, plus an interest charge. This is the same with marginal stock. You are borrowing part (usually around 80%) of the stock price from the broker. For this service the broker will charge you interest. If you buy a $100 stock you give the broker $20 and borrow $80. You then pay interest on that $80 until you sell. So theoretically, If the stock goes up to $150 you must give the broker back their $80 plus the interest for the time you held the stock. The great part in using margin (if the stock goes up) is making a $20 investment you have gotten your $20 back plus a $50 profit minus whatever interest is due. Many day traders use this method to make a lot of money by buying and selling stocks quickly - sometimes buying in the morning and selling in the afternoon - hence day trading.
Knowing the Stocks you Buy
If your interested in margins the best advice is to know your stocks. One bad bet can cost a lost of money. Conversely, it can make you a bundle. History can help with a stocks' rises and falls but circumstances of a particular day can affect a solid stock to a great extent. Think what would happen to the health insurance provider's stock if the government announced universal health care for the citizens of the United States. Everything affects the stock prices - politics, weather, the moods of the people. When a few of the banks borrowed from the government most bank stock whet down, even if they were not borrowers from the fed.
On Margin or Outright
Making an investment in the stock market with someone elses money is not recommended, unless you can ensure that the stocks you buy are going to go up in value. Of course we all know this is impossible to do because of the nature of the market. Outright purchasing of stocks is the optimal way to invest. Buying them outright puts all the profits in your pocket and then allows you to reinvest those profits into other stocks. - 29970
About the Author:
Richard Moran is a Business Consultant and writer for Money Helpers. The Blog contains 100's of articles, charts, and calculators to aid you in your Business well-being. All the aspects of the Blog are free and it is updated on an almost daily basis. If you are looking for any Business aids or products they can be found on Money Helpers.
