"margin"

JC Rodriguez
May 23, 2024

Good morning! Here’s another fancy finance buzzword that is actually a trap.

DEFINITION
What is “margin”?

Margin in financial terms is like a loan you get to buy more stuff. Imagine you have $100, but you want to buy $200 worth of furniture. The store lets you use your $100 and borrows you another $100. This borrowed money is the margin. You can now buy the $200 worth of furniture, but you need to pay back the $100 you borrowed later. If the furniture goes up in value, you can sell them, pay back the loan, and keep the profit. But if the furniture loses value, you might end up owing more money. So, margin can help you buy more, but it can also be risky.

If you’re considering using margin to buy stocks, here’s a practical tip: only use a small amount of margin, like a little booster, and invest in stable, well-known companies. But remember, using margin can be very risky and stressful. If the stock prices drop, you could owe more money than you invested. It’s usually safer and less stressful to invest only the money you actually have. Think of margin as a double-edged sword—it can help you buy more, but it can also lead to bigger losses.
I DON’T invest with margin.

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