One of the biggest complaints about investing in the stock market, especially when compared to investing in real estate is the lack of ability to leverage your investment.
Real estate advocates claim that in real estate you can borrow money from the bank to give yourself more buying power whereas you cannot do this in stocks.
This is actually not correct.
There are numerous options to be able to leverage yourself in the investment of stocks by taking advantage of such techniques as short selling and the purchasing of put and call options.
Another leverage technique for stock investing is the use of margin.
So what is margin exactly? Margin is the ability to borrow money from your broker for the purposes of purchasing more stock.
You do have to pay interest on the loan and it is automatically deducted out of your brokerage account every month.
Margin interest rates are currently averaging between 7 to 10% on a $7000 loan.
The amount of money you can borrow depends on how risky the broker classifies the stock you want to buy.
The broker will lend you anywhere from 30 to 70% of the total amount you need to make the purchase that you want.
If the stock price goes up, you can make an absolute killing.
However, if the stock price goes down, your portfolio can literally be killed as well.
Therefore its better to avoid margin until you have been investing for several years and have given yourself time and experience to make mistakes and learn.
So when should you consider using margin.
The best time to use margin is at the beginning of a new bull market.
This gives you the opportunity to leverage the large run ups that undoubtedly will take place from the best performing stocks in the market.
You must be a very disciplined investor in order to successfully use margin without going broke in the process.
Make sure you have a maximum loss that you are willing to accept and that you have consistently stuck to that maximum loss regardless of what happens before considering using margin.
This discipline is absolutely essential for successful investing using margin.
The signs that you use to identify good stocks that you buy without margin are going to be the same signs you are going to use to identify good stocks that you buy on margin.
You are looking for companies with strong earnings and revenue growth, with superior products that are the market leader in their industry.
You are looking for stocks that demonstrate proven chart patterns like a "cup with handle" or "double bottom" price patterns.
Have a group of several potential stocks that fit these characteristics and then purchase the best stocks out of these categories.
By having strong philosophies and trading rules that you follow consistently and not let your emotions get in the process, you will have the patience necessary to trade successfully with margin and really get the full leverage out of your investment to rocket your portfolio.
Real estate advocates claim that in real estate you can borrow money from the bank to give yourself more buying power whereas you cannot do this in stocks.
This is actually not correct.
There are numerous options to be able to leverage yourself in the investment of stocks by taking advantage of such techniques as short selling and the purchasing of put and call options.
Another leverage technique for stock investing is the use of margin.
So what is margin exactly? Margin is the ability to borrow money from your broker for the purposes of purchasing more stock.
You do have to pay interest on the loan and it is automatically deducted out of your brokerage account every month.
Margin interest rates are currently averaging between 7 to 10% on a $7000 loan.
The amount of money you can borrow depends on how risky the broker classifies the stock you want to buy.
The broker will lend you anywhere from 30 to 70% of the total amount you need to make the purchase that you want.
If the stock price goes up, you can make an absolute killing.
However, if the stock price goes down, your portfolio can literally be killed as well.
Therefore its better to avoid margin until you have been investing for several years and have given yourself time and experience to make mistakes and learn.
So when should you consider using margin.
The best time to use margin is at the beginning of a new bull market.
This gives you the opportunity to leverage the large run ups that undoubtedly will take place from the best performing stocks in the market.
You must be a very disciplined investor in order to successfully use margin without going broke in the process.
Make sure you have a maximum loss that you are willing to accept and that you have consistently stuck to that maximum loss regardless of what happens before considering using margin.
This discipline is absolutely essential for successful investing using margin.
The signs that you use to identify good stocks that you buy without margin are going to be the same signs you are going to use to identify good stocks that you buy on margin.
You are looking for companies with strong earnings and revenue growth, with superior products that are the market leader in their industry.
You are looking for stocks that demonstrate proven chart patterns like a "cup with handle" or "double bottom" price patterns.
Have a group of several potential stocks that fit these characteristics and then purchase the best stocks out of these categories.
By having strong philosophies and trading rules that you follow consistently and not let your emotions get in the process, you will have the patience necessary to trade successfully with margin and really get the full leverage out of your investment to rocket your portfolio.
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