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Margin Buying

                TINKU KUMAR
                CFA – 1 level
 Margin buying is a way of spending more money
  than one actually has on hand on an investment.
 This is done by putting a smaller investment down
  as collateral, and then borrowing money from the
  broker to make up the rest of the cost of the
  stocks.
 Margin buying can be an excellent way to make a
  lot of money off of a relatively smaller amount of
  initial capital but it can also result in some pretty
  devastating losses.
Example
 Imagine we are purchasing a stock for $100, and we
  are buying it all with our own money. The price of the
  stock then doubles, leaving our stock worth $200. We
  have just made a 100% return on our initial
  investment, and a profit of $100.
 Now imagine we only have $25, so we purchase $100
  worth of stock using margin buying, with a $75 loan
  from our broker. The stock price doubles to $200, so
  our return is actually 700%, minus the $75 plus
  interest we owe to our broker. So off of an initial
  investment of $25, we've made nearly $100, or almost
  quadrupled our initial investment.
  So margin buying can be a wonderful shortcut to
  reaping large returns.

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Margin buying PPT

  • 1. Margin Buying TINKU KUMAR CFA – 1 level
  • 2.  Margin buying is a way of spending more money than one actually has on hand on an investment.  This is done by putting a smaller investment down as collateral, and then borrowing money from the broker to make up the rest of the cost of the stocks.  Margin buying can be an excellent way to make a lot of money off of a relatively smaller amount of initial capital but it can also result in some pretty devastating losses.
  • 3. Example  Imagine we are purchasing a stock for $100, and we are buying it all with our own money. The price of the stock then doubles, leaving our stock worth $200. We have just made a 100% return on our initial investment, and a profit of $100.  Now imagine we only have $25, so we purchase $100 worth of stock using margin buying, with a $75 loan from our broker. The stock price doubles to $200, so our return is actually 700%, minus the $75 plus interest we owe to our broker. So off of an initial investment of $25, we've made nearly $100, or almost quadrupled our initial investment. So margin buying can be a wonderful shortcut to reaping large returns.