Investing 101
Beware Margin Investing
Margin investing is a way of buying stocks, bonds, or other investments using money borrowed from an investment dealer. It is a high-risk strategy that is rarely suitable for investors.
It is important to understand that the investment dealer is in a conflict of interest whenever its financial advisors recommend margin investing.
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Margin investing is a way of buying stocks, bonds, or other investments using money borrowed from an investment dealer. It is a high-risk strategy that is rarely suitable for investors.
It is important to understand that the investment dealer is in a conflict of interest whenever its financial advisors recommend margin investing.
It allows an investor to buy more investments than they could with their own money alone.
To use margin investing, an investor sets up a margin account with a brokerage firm and deposits some of their own money, which is called the margin. The dealer then lends the investor more money, which is used to buy additional investments.
The amount of money that the investor can borrow is based on the value of the securities they hold in their margin account.
While margin investing can increase potential gains, it also increases the risk of possible losses. If the value of the securities in the margin account decreases, the investor may have to deposit additional money into the account to cover the loss. If the investor cannot meet this requirement, the brokerage firm may sell some or all of the securities in the account to repay the borrowed funds.
It is important to note that margin investing is a complex and risky investment strategy that is not suitable for all but a very few, high net worth investors.
It is required that financial advisors fully explain, in plain language, the risks and costs associated with margin investing before recommending this strategy.