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Margin Trading in the Stock Market

Business - Josephine - July 16, 2020

In stock trading in general you must have the full amount of money to buy, but if the stock accounts were opened in the United States, and if the deposits for more than two thousand dollars, you can apply to securities firms’ Margin Account. It is a good way to conduct credit transactions, engage in the financing, securities, and write-off as you try Trafigura trading. The so-called “credit transaction” is for those who want to buy the stock but with insufficient funds, or want to sell their shares but lack the current stock. Credit trading is a kind of lending practice, like buying a house in that you first use your own fund then you can utilize the bank loans.

Usually, stock brokerage companies allow investors to buy in the margin, or have shares in your account as collateral to buy stocks. U.S. Federal Reserve Board (Fed Board) provides customer financing deposits to have their shares purchased by the market value of 1 / 2, which is 50%. In other words, suppose you open a margin trading account, deposit $ 2,000 U.S. dollars, then you can use the financing to buy $ 4,000 worth of stock (the $ 2,000 U.S. dollars loan must be paid with interest rate), but the various securities dealers may have different financing requirements.

Simply put, the meaning of finance is to borrow money. Investors expected future stock prices to go up. But with not enough funds in the hands, they pay part of the deposit to the credit institutions to borrow money to buy stocks, after waiting for an opportunity to sell the stock at high prices to profit enough they buy low and sell high. In other words, if the 100 dollar of stock, financing into 40%, meaning the original purchase of 1,000 shares of stock requires 10 million dollars, after and only after the brokerage financing can bring their own money to purchase with only 6 million dollars. For those with insufficient funds, but are eager to buy the stock, financing is a great method to invest.

On the contrary, securities lending investors usually are there to short the stock. Investors anticipate the stock will fall, but they do not have money to buy the stock. They pay the deposit to the credit organizations to have to right to sell the stock. Then they look for an opportunity to buy the stock at a low price.

Basically, every time there are no special restrictions on the financing, the financing of the interest calculation method is that if the client account is in cash, first subtract the cash part then use the remaining amount to multiply the financing interest rate. In the financing transactions, as long as the investor has enough purchasing power (Buying Power), they can immediately buy or sell. If the investment is to short sell, Margin Account can also be used to do so, but in the case of borrowing, investors can only be shorting.

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