Is margin investing only good for the short term?

Question

I recently opened a margin account, in order to increase my trading power, however with the interest that is charged, I am wondering if it is worth it for long term investments, or if it is only good for the short term?

Answer 1

I'd say short term but generally speaking it's good as long as your return exceeds the interest you are being charged.

Answer 2

Your first mistake is opening a margin account. While this does allow you to use other people's money to leverage a winning trade, it's all still your money when you're losing. What you have essentially done is found a way to lose money at twice the rate that you normally would.

Depending on your broker, you may be surprised at your first statement to find out that every trade you make from now on is a margin trade, even if you're more than 50% cash in your account!

If you've found the holy grail and can beat the market with your picks, and REALLY want some leverage, forget this margin nonsense and trade in LEAPS. This will allow you to trade the market up and down without having to deal with margin calls when things go against you and having a delay when you sell short into a fast moving market. It also gives you HUGE leverage over margin trades.

If you're a buy and hold investor, having a margin account will require you to maintain a pretty hefty amount of cash in your account against a plunge and consequential margin call. Remember, stops don't work if the market gaps overnight.

Good luck, and I hope you don't spend as much for your education as I had to.

Answer 3

Margin is only charged when you exceed your cash position. Just make sure you don't do that and you'll be fine. People buy on margin to get 2:1 leverage.... but an option is more leverage than that... so buying options with margin is very very leveraged.

Answer 4

It is for short term speculators. You'd better know what you're doing, or you could get burned very badly.

Answer 5

the interest is the least of your worries.