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Margin& #39;s a fancy way of saying your brokerage is lending you money to buy more stocks.
It& #39;s debt.
So if your brokerage allows you to borrow 50% on margin, $1,000 becomes $1,500.
In exchange, you pay interest on your loan.
2/8
It& #39;s debt.
So if your brokerage allows you to borrow 50% on margin, $1,000 becomes $1,500.
In exchange, you pay interest on your loan.
2/8
Here& #39;s why margin is SO tempting, especially for new investors...
Given low interest rates, you can borrow for, say, 2.5% a year.
Peanuts compared to the 10% historical stock market return. And much, much lower than the returns many investors have seen this past year.
3/8
Given low interest rates, you can borrow for, say, 2.5% a year.
Peanuts compared to the 10% historical stock market return. And much, much lower than the returns many investors have seen this past year.
3/8
When stock prices rise, you look like an absolute master of the universe!
If your stock goes up 50%, you gain 75%!
BUT...
4/8
If your stock goes up 50%, you gain 75%!
BUT...
4/8
Here& #39;s the catch.
Contrary to popular memes, stonks don& #39;t always go up.
And when they go down, margin kills you.
5/8
Contrary to popular memes, stonks don& #39;t always go up.
And when they go down, margin kills you.
5/8
Back to example of boosting $1,000 to $1,500 using 50% margin...
If your stock falls 50%, that $1,500 becomes $750.
But remember, you borrowed $500.
So really your $1,000 becomes $250 ($750-$500).
6/8
If your stock falls 50%, that $1,500 becomes $750.
But remember, you borrowed $500.
So really your $1,000 becomes $250 ($750-$500).
6/8
