Margin Trading

Written by Michael Federico
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When a person opens a margin account with a brokerage firm he has the ability to borrow money, stocks, or assets from the broker. Margin trading often allows a person to make trades that he would not normally be able to afford on his own. When the trade is completed, no matter what the outcome, the borrower will have to repay the amount he took from the broker with interest.

Certain brokers have different rules regarding margin accounts and when loans have to be paid. Certain clients are also afforded luxuries that others are not. But, no matter what the case, the money will have to be paid back at some point regardless, so before a person trades on margin he should be aware of all rates and fees involved.

Many brokers will allow a client with a margin account to borrow money for a non-trade related purpose. However, margin rates can be extremely high. A person who borrows from a broker, but does not have a trade to make money on, can end up spending a lot for very little.

Low Rate Margin Accounts

People who open margin accounts with brokers are generally dedicated traders. They are willing to take risks in order to make money. Most people in the field believe that margin trading should be left to those who can afford to easily pay back loans regardless of how a trade works out.

There are brokers that offer low interest rates on loans for people with margin accounts. This does not mean that everyone should jump on board and start margin trading. However, it does give people who do not trade in mass quantities of stock a chance to make larger trades without incurring too many extra costs.

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