What is Margin? | What is a Margin Account? | What is Margin Trading?

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Good day subscribers thank you so much for joining me today on the financial education channel i am jeremy this is a financial education channel and today we are talking about margin what is margin what is margin trading what’s a margin account this can get very confusing for a lot of people and many retail investors hear these terms used and they don’t quite know

What they mean and they may hear them heard from their brokerage who might tell them hey you should open up a margin account but you might not know exactly what that is today i’m going to help you in answer so much about margin accounts hopefully your information is like up here at the end of this video so in the most simple terms possible a margin account is a

Stock trading account that you can go ahead invest an extra dollar for every dollar you have so you can basically create debt so if you believe in a stock a lot and you have a hundred dollars in your account you can invest an extra hundred dollars into that stock so you can have two hundred dollars actually invested in that stock even though only a hundred dollars

Is yours so a margin account allows you to be able to invest a lot more money than you have basically you’re basically issuing debt now the big problem that is makes margin very scary is say you have a hundred dollars and then you invest the other hundred dollars in debt also in that stock so you have two hundred dollars so we’ll invest it for only a hundred dollars

Is actually yours the other hundreds just just debt excuse me it’s let’s say that stock went down fifty percent so you will then lose all your money if that stock just went down fifty percent because then it goes down to a hundred dollars but remember the brokerage is the one that always gets their money first so the brokerage gets their money first so if there’s

Only a hundred dollars left in there that’s their money at that point you lost everything you lost all your money whereas if you just invested in that stock regularly in a regular brokerage account you didn’t go on margin you didn’t take out debt and used it $100 in it net stock would have to go a hundred a hundred percent for you to lose 100 percent of your

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Money if it went down 50 percent you would still have 50 dollars left but you see when you issued that debt you test it with a lot more money and of course here’s the other thing what if that stock doubled what if that stock went up a hundred percent well if you had your hundred dollars invested and that’s it and you didn’t have any margin then you would have two

Hundred dollars right because you’ve got a hundred dollars it doubled now you have two hundred but if you had two hundred dollars invested so you had a hundred dollars of your own hundred dollars of debt and now you have four hundred dollars but 300 of that dollars is yours three hundred of that $1 because you only need to still pay back your hundred dollars that

You issued in debt so you make a two hundred dollar profit versus just making a one hundred dollar profit if you would just invested in a regular brokerage and you didn’t take out any debt so that is the power of margin you can make so much more money investing on margin if you are picking the right stocks and doing the right things and everything’s going your way

You can just rack up money but on the downside if socks start going bad you pick a bad name to go into you can get hammered union it absolutely hammered and lose everything even without that stock losing all its money just because you can’t pay the debt and you get what’s called margin calls coming after you which a margin call is issued when a stock goes down too

Far and that you need to read the guidelines on if you ever do open up a margin account because every brokerage is different but if if basically a stock gets too low in its price where it puts you the the banks i don’t call the bank the financial financial institutions money at risk or whatever they feel is at risk they can issue a margin call and say hey you need

To come up for $500 or $1,000 you put that in your account by three from now or we’re going to sell all your shares for you imagine that imagine being down 20 30 % on a stock and you know the stock doesn’t believe you know it doesn’t belong trading here should be much higher than this and you get a margin call and you don’t have that five hundred thousand dollars

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Or whatever amount of money to put in your account right then in there and they just go ahead and sell all your shares imagine that and you lose so much money because if it went down 20% and you were investing on margin 100% then you lost actually 40% not just 20% so that hurts so that is a big danger about margin now a reason why a margin account is good is if

You never touch the margin but here’s why it’s good a regular brokerage account you can’t do day trading the reason being trades need 3 days 3 days to close if you’re day trading or you’re trading in and out of stocks it’s going to create a balance left over from that previous stock so you’re not allowed to basically invest it again in another stock because then

That stock needs to close three days and whatnot so you’re basically making the financial institution come up with that money in the mid term so you can perform your trade in trade and trade and trade because it takes three days for this trades to close out so you’re just creating a big thing for them to keep you know basically additional money because that money

Is still in that stock technically until it’s closed out which takes three business days but a margin account allows you to skip all that because a margin account you can trade and then you can be on margin but you’re not on margin as long as you’re not investing more than what your account has because once that that three days comes by it’s going to close out

Completely so that’s a huge advantage of a margin account if you’re someone that likes to day trade if you’re a trader you pretty much have to have a margin account you have to there’s no other way around it so that’s what would be considered margin trading so if you ever hear someone say margin trading that’s probably what they’re mean they mean you’re doing day

Trading so you’re you’re you have money in that balance they’re now on a margin account not only do you risk losing all your money based upon just much smaller losses in the stock but you also have to pay interest on whatever money you loan out and the amount of interest you pay out depends on how much you take out for a loan and how much you have in your account

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Balance so you can pay seven eight nine percent on the margin money per year so let’s say you have this thing you take out $100,000 you know you have $100,000 then you take out a hundred thousand dollars to also invest in margin death so on that hundred thousand if you’re paying a nine percent rate you’re going to pay $9,000 to the financial institution of your

Own money just to have that margin so you need to make at least a nine percent return just to cover it so in margin margin trading you have to be extremely confident you can make very high gains as a percent otherwise you’re going to get wiped out and then obviously i talked about it you know if you go too heavy in a stock and that stock goes down next thing you

Know you have margin calls then not only do you have margin calls but then you need to pay your balance off every month of interest which is seven eight nine percent whatever you’re paying somewhere around there it’s generally between seven and nine so you can get hammered hammer i know from experience i’ve been hammered there i’ve tried the margin because i’ve

Been super successful with stocks so i thought hmm let me just a little more and it is something to be very scared about and if you do it be very aware of what i’m telling you because it’s going to matter a lot and everybody gets that mode where they’re like really talking about it like no no i can do it i can invest on margin and then sometimes it doesn’t work

Out and it’s really unfortunate anyways i hope that explained perfectly what margin trading is what a margin account is what margin is and of the day and thank you so much for watching as always guys if you haven’t subscribed you may want to i talk a ton about stocks and things like that related to today’s video talk about personal finance and i also talk about

Business and being a young entrepreneur being an entrepreneur in general so i thank you so much for watching guys and have a great day

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What is Margin? | What is a Margin Account? | What is Margin Trading? By Financial Education

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