Buying on margin to make huge gains
Buying on margin can be a very effective way to leverage your money in the stock market. Let me ask you something. If you wanted to make $100 in the stock, would it be easier to make $100 from $500 or $1000? $1000 of course.
If you make $100 from $500 that is a 20% increase. That may be a little hard to pull off in 1 month. But if you make $100 from $1000 that is only a 10% increase in a month. Now I’m sure you all realize that the more money you have in the market the more you can pull out. So let me give you an example on how margin does just that.
Tom wants to buy stock ABC. It is a good stock that he believes will go up. The stock is currently trading at $85. He buys 100 shares of ABC. 2 years go by and ABC is trading at $170. Tom is excited and sells his stock. This gives him a 100% increase in 2 years.
In this example Tom made a good profit of his investment. But there is a way in which Tom could have made even more money. What is it? (more…)
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