Margin Trading
Investors borrow funds from a broker to purchase securities, magnifying gains or losses.
Detailed Description
Margin Trading
What is margin trading?
Margin trading is a method of trading financial assets using borrowed funds from a broker, allowing investors to buy more securities than they could with their own capital.
What are the types of margin accounts?
The two main types of margin accounts are standard margin accounts and pattern day trader accounts.
What is a margin call?
A margin call occurs when the equity in a margin account falls below the maintenance margin requirement, prompting the broker to require additional funds or asset liquidation.
What are the risks associated with margin trading?
The primary risks include the potential for losses exceeding the initial investment and the emotional pressure that can lead to irrational trading decisions.
How do interest rates affect margin loans?
Interest rates on margin loans can vary and are typically charged daily, impacting overall profitability and should be considered in trading strategies.