Can someone explain margin to me, Like a margin account for stock trading...?

Question

I wanted quicker access to reuse the funds after I sell a security, but they said I needed to wait 2-3 days for it to clear.... someone suggested Margin, but does it cost me anything, how do they work?

Answer 1

Margin just means borrowing money from the broker to buy extra stock. So if the stock goes up, you get extra profits. You pay a small interest rate (about 1/2% per month), so you only win if the stock goes up more than the margin rate.

You shouldn't have to wait 2-3 days. Get an online account, for example scottrade.com and you only have to wait 2-3 minutes.

Answer 2

Margin is almost like a loan. So if you have $10,000 most trading companies will allow you to 'borrow' that amount to buy more securities. AS LONG as you remain in the clear and your securities do not drop then you are fine, but if the stocks go down you will receive a 'margin call' and you must repay the money back asap by selling stocks and out of leftover cash in your account. BE CAREFUL with margin accounts, it can get you in a lot of trouble if you do not know what you are doing.

Answer 3

I seem to recall a similar requirement when I was much younger. I believe that the clearing that you are talking about has to do with stock orders and the time delay between when an order is made and when an order must be paid. One illegal method of making money is using that delay between an order and when you have to pay for it, as a slush account to pay for securities that you have not actually purchased. Lets say you buy 500 shares of Widgets Inc at $1 and owe $525 for the transaction and fees. SEC requires that the money be in your account within 3 days. Meanwhile, Pennystock X just announced a favorable decision and you want to get in on the action -- but wont have the funds until later in the week. You place a sale order for widgets (before you have even sent the money). In the *olden* days (circa 1988-90) you could basically get that sale of yet-to-be-paid-for-Widgets credited to your account and use that as the basis for the next purchase. Ultimately, you are getting a few days loan of money --> I will leave it to real experts to explain how this can be used for nefarious purposes, but essentially, that is the reason for the *limit* of 2-3 days to clear. Most likely, you should be able to make arrangements in advance of purchases to alleviate this liitle roadblock. Most brokers are happy to set up margin accounts for clients -- they can use securities currently held as *collateral* for the loan.

Answer 4

do not open a margin account..no...no way...the only person who would suggest that to a beginner investor is someone who will profit from it...stay clear. what you are doing is borrowing to buy more stock and using the value of the stock for collateral. ifthe stock goes down you will loose big time