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What is margin trading ?
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[QUOTE="Sforextrader, post: 186811, member: 52917"] Margin trading is a form of borrowing that lets you leverage securities you already own to purchase additional securities, protect your account from overdraft or access a convenient line of credit. Margin trading is not designed for any specific type of customer – it may be right for any investor looking for additional leverage in their investment. Here’s an example of how it works: assume you want to buy 1,000 shares of QRS stock at $10 per share, but only have $5,000 in investable cash available. With a margin account, you can use your $5,000 in cash and borrow the other $5,000 on margin to make your purchase. Without margin – with what’s called a cash account – you would need the full $10,000 in cash to make this stock purchase. Now let’s see how a margin loan could impact your investment return. Assume the QRS stock rises in value from $10,000 to $11,000 and you sell it. You would pay back the $5,000 margin loan and realize a profit of $1,000. That’s a 20% return on your $5,000 investment. Without a margin loan, you would have invested $10,000 in cash and realized only a 10% return. While leverage is a powerful tool when the price of the security moves in your favor, it is also important to recognize the downside if the stock price falls. [/QUOTE]
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