Margin trading, also referred to as “buying on margin” is the borrowing of money from a broker in order to purchase stock, or other securities. Margin trading provides stock investors with the ability to buy more stock than he or she would normally invest through the use of a margin account. In fact, once you open this account, you can borrow up to 50% of the purchase price of a stock! The investor must open this account with a brokerage firm and there is a minimum amount that is required to open it. This amount will depend on the brokerage firm that you choose to open an account with. You of course do not have to borrow 50% but can instead borrow 10% or 20%.

Margin trading is a popular way for experienced stock traders to increase their profits but they must be careful that they understand exactly how margin trading works. First of all, it is very important to understand that when you sell the stock that you have in a margin account, the profits first goes to your broker in order to pay off the loan. You also must understand what a “margin call” is. A “margin call” occurs when your account dips below the minimum account balance that is required. This minimum amount is referred to as the maintenance margin and if your account dips below this amount, then you will be forced by your broker to deposit more funds into your account, or you can sell the stock in order to pay off your loan.

It is important to note that margin trading is mainly used for short term trading and investing. This is because the longer you hold onto an investment, the greater the return that is needed to break even. So basically, chances are slim that you will make a profit if you hold an investment on margin for a long period of time. This is because you have to pay interest on your loan and you have to pay these rates until you make payments on it. As you can imagine, this can create some debt over time as the interest charges accrue.

Remember, while you can make a lot more money trading stock on margin than you can from a strictly cash position, you can also lose a lot more money! Be sure that you clearly understand trading margin and that you have a good plan in place so that you trade responsibly.

Please also read about Japanese Candlesticks which is a trading strategy used by some of the world’s most successful traders along with other forms of technical analysis. It is the fastest way for new investors to quickly and accurately read stock market charts when trading stock. Once you are comfortable with the major candlestick signals, expand your expertise by learning the secondary Candlestick Patterns. Combine these with your favorite technical indicators and you have the perfect trading arsenal for evaluating stocks, currencies, commodities, or exchange traded funds.