Should You Trade Stocks On Margin?
So you have this great stock trading idea and have just found a stock that you believe would make you tons of money if you applied this idea to it. You have some cash in your savings account, but haven’t really set up an account with Questrade or Wealthsimple yet and don’t have enough to make a killing. . Is there a good and quick way to get some more funds to capitalize on your brilliant diamond in the rough?
Well, it turns out that there is such a way. Just ask your broker to lend you some money. This can be done totally over the counter, it’s absolutely legal, has been in use for many decades, and virtually everyone can take advantage of it. No special application is needed for this, either. You simply use more funds than you have in your account and keep on living your life as if nothing really happened. This sort of stock trading when the broker’s money is used in addition to your own funds is called trading on margin.
What do I need to trade stocks on margin?
You need to have a margin account for this, though, which is pretty much the same as the ordinary stock trading account, but it’s just called a margin account as it comes with the privilege of borrowing money from your brokerage. And you need to apply for it first. In fact, if you don’t have a regular stock trading account yet and plan on opening it, I suggest you simply open a margin account to make your life easier in future.
Because if you ever decide that it’s a good idea to put some of your broker’s money to work for you, you will find this account handy. You can do in this account everything you could do in a regular trading account, plus more. And this more includes not only trading stocks on margin, but also trading stock options. In fact, you cannot trade options in a regular stock trading account. A margin account is necessary for that.
Make sure you aren’t going to trade stocks on margin recklessly
Before you ever use margin, make sure that you have traded without it for a while and you are experienced enough to handle an additional risk of potentially losing not only your money but also the broker’s. Well, the latter will usually not happen for if the brokers money were at risk, your position would be liquidated and you might also receive a margin call asking you to pay for what you own your broker. Just as I said: tread carefully here.