Margin Trading is borrowing of money for buying stocks in the market and FOREX market also takes part in it. This is considered a FOREX margin and in this the foreign currencies are made part of the trade. At FOREX the margin is calculated as the notional trade size plus the extra money. The extra money is subject to the fluctuations of the market. Margin trading is like earning profits on the borrowed money. Although, it is very attractive for the investors who have very little money to invest on their own the downside is that the interest rate charged can eat up the profit earned.
ADVANTAGES OF MARGIN TRADING:
The most prominent advantage of Margin trading is that even though you do not have money to buy company shares or stocks you do it and start earning profit with what is not yours’. You earn money on the leverage that is you earn on the basis of borrowed money.
DISADVANTAGES OF MARGIN TRADING:
The biggest disadvantage that comes with the advantage is the interest that you have to pay for the borrowed money. Sometimes what happens is that the profit you earn mostly goes into the interest money and at that time it profits more to the one you are buying from then you. The margin trading comes to another toll that if you are investing on the basis of the money loaned out and then the stocks are going down you are practically doomed as you have to pay interest on that money whether or not you are earning profit.
Tips for buying margin:
When you buy a margin and invest it in stock always keep in mind that you pay it back sometime sooner or later and for that purpose you need to keep up a payback plan and along with it take some precautionary measures like investing in the companies with high rating in stocks at the time of investing.
Monitoring of the stocks you have bought using your margin is the most important factor. You don’t want to lose your money with the stock losing its value.
When you are buying margin you have to be careful as loaning margin can be risky. The margin is what you would never be able to afford so always keep enough in reserve for all the adversaries that may happen.
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