Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

shane

Can Anyone Explain Margin In Laymans Terms... Please :)

Recommended Posts

Hello, I have been day trading for under a year... I use Interactive Brokers but I usually only get to trade one or two days during each week because Once I use my cash, I cannot use it again until it clears which takes 3 or 4 days.

 

I do not use margin, but I've been reading about it. I'm assuming that if I signup as a margin account, I will then be able to double the money I have to use for trades?

 

(1) Lets say I have $30,000 cash account. If I signup for a margin account, will I then be able to trade with $60,000? Thus allowing me to trade more than one or two days per week?

 

(2) If I close all positions before the end of each day, do I still have to pay interests on the margin money? (I ask because I read an article that seemed to say that).

 

(3) Do any of you use a margin account, and if so, do you feel like sharing any pros and cons?

 

basically I feel like I'm doing pretty good with my trades overall, but just not making a lot of money because I enter and exit pretty quickly with low amounts of shares (100 - 300). If I had more, I could jump back in at the next reversal or just in general trade on more days than just one or two.

 

Well thanks for any advice and I look forward to being a member of this forum. I just foudn it today and I have spent hours reading through it already! lol. Im about to go eat finally. LOL

Share this post


Link to post
Share on other sites

For any broker - best to seek out there own words.

Margin

 

Once you switch to a margin account - if your trading STOCKS - if you borrow money to purchase a stock - you will pay interest. I am not sure when IB charges it - there rates are low (money is cheap right now...right?).

 

Regarding specifics - you can borrow up to 50% of the price of the security to purchase on margin. And you must maintain adleast 25% of the total market value of the securities you own within the margin account. (So if you have a portfolio worth 200K, you need to have adleast 50K in the account). If your a pattern day trader - you need to have at the bare minimum 25K in the account or 25% of portfolio - whichever is greater.

 

So...if your looking for advice...I would tell you - forget the above. Dont trade on margin. Wait until you have 2 or 3 years of success under your belt.

 

The reason your not making alot of money has NOTHING to do with not trading on margin. It has to do with either too early profit targets, too late of stop exits, or poor trade selection. There are a tremendous amount of very successful traders who trade unleveraged. If you want to leverage up - adleast get some solid success in the rear view mirror. Otherwise you are just asking to be blotted out quicker than the usual wash out rate.

 

Remember...this is a profession. You don't start skiing on double diamonds or chutes in Jackson Hole. You start on the bunny hill. Enjoy the experience.

 

Good luck

Share this post


Link to post
Share on other sites

Margin is a loan from the broker to buy stocks. Margin is also a percentage of notional value you need to deposit to trade a futures contract or a forex lot.

 

I try to avoid using margin as much as possible because if things go bad traders on margin lose everything they have made for many months or years in just one day.

Share this post


Link to post
Share on other sites

Anyone who treats trading as a business would want to multiply their efforts as quickly as possible. There is no other liquid business in the world that allows the amount of leverage that stocks/futures/forex/etc derivatives offer. So with a successful trading strategy, I wouldn't see a reason NOT to use the extra buying power to scale as much as the mechanical limits allow.

 

Sure you can just run one restaurant all the time. But why not have two restaurants? 4? 10? etc if you could afford it?

Share this post


Link to post
Share on other sites
Anyone who treats trading as a business would want to multiply their efforts as quickly as possible. There is no other liquid business in the world that allows the amount of leverage that stocks/futures/forex/etc derivatives offer. So with a successful trading strategy, I wouldn't see a reason NOT to use the extra buying power to scale as much as the mechanical limits allow..

 

If you do not see a reason now see what happened in 2008 when investors on margin, not even traders, were liquidated just before the market bottom.

Share this post


Link to post
Share on other sites
Hello, I have been day trading for under a year... I use Interactive Brokers but I usually only get to trade one or two days during each week because Once I use my cash, I cannot use it again until it clears which takes 3 or 4 days.

 

I do not use margin, but I've been reading about it. I'm assuming that if I signup as a margin account, I will then be able to double the money I have to use for trades?

 

Theoretically yes. Assuming you are talking about stock trades, you may have double the money (or 4x if you're a pattern day trader).

 

Other markets may have their own leverage system so for now we're only talking about stocks.

 

(1) Lets say I have $30,000 cash account. If I signup for a margin account, will I then be able to trade with $60,000?

 

Yes. Your account will say something like this:

 

Cash balance: $30,000

Buying Power (non-Margin): $30,000

Buying Power (Margin): $60,000

 

These values may change depending on if you currently have any positions. Different stocks may require different levels.

 

If you do more than 3 round trips in a week and your account gets labeled as a pattern day trader, you may get 4x margin.

 

Thus allowing me to trade more than one or two days per week?

 

A margin account lets you bypass the waiting period for funds to become available.

 

(2) If I close all positions before the end of each day, do I still have to pay interests on the margin money? (I ask because I read an article that seemed to say that).

 

No.

 

(3) Do any of you use a margin account, and if so, do you feel like sharing any pros and cons?

 

I have 2x margin in my account (I don't day trade stocks) but I don't actually use the margin, it's just there because I happen to have a margin account.

 

Keep in mind that just because you have margin doesn't mean you have to use it. In the example you gave with a $30,000 account, even if you have a margin account and they give you $60,000 buying power, as long as you don't buy more than $30,000 worth of stock you won't be using margin and you won't be charged any interest.

 

basically I feel like I'm doing pretty good with my trades overall, but just not making a lot of money because I enter and exit pretty quickly with low amounts of shares (100 - 300). If I had more, I could jump back in at the next reversal or just in general trade on more days than just one or two.

 

Correct, it would be available immediately.

Share this post


Link to post
Share on other sites

Thanks a lot 1a2b3cppp! and everyone else as well for all of the input.

 

There is obviously a lot of pros and cons to using margin. Im glad I asked the question.

 

I was about to just stay away from it, but now after 1a2b3cppp's comment, I'm interested again. lol. :) I'm on a roller coaster...

 

 

One person replied with the following, "if things go bad traders on margin lose everything they have made for many months or years in just one day"

 

So let me ask a follow up question...

 

- Assume this scenario: I'm day trading stocks only, and closing out all positions before the end of the day.... and on bad trades, Im selling off the stocks for a small loss before the price falls too far...

 

My question: Wouldn't the broker just take back the money that was loaned? and therefore basically just close positions? lets say you bought 100 shares of ABC stock for $25. then that day The broker forces you to close positions.. You dont lose all the money right? if the stock was selling at $24, then you basically just lose $100, right? If that is correct, it doesn't seem that bad of a deal.

 

Am i understanding correctly yet? :)

 

Thanks again!

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • A History Of Consecutive -3% Days (Decline) https://seekingalpha.com/article/4327321-history-of-consecutiveminus-3-days by Ploutos CFA Summary The global spread of the coronavirus has pushed the S&P 500 down 3% on consecutive days. That is a fairly rare occurrence for markets with only 15 occurrences of consecutive down days of that magnitude since the Great Depression. When these types of consecutive down days occur outside of economic recessions, markets have tended to recover and move sharply higher over the next year. With the epidemic slipping towards a pandemic, the extent of economic damage remains unknown.  Markets are selling rich valuations and pricing in negative outcomes. +------------------------------------------------------------------------------+ The Difference this time is, the decline has occured after consecutively achieving market highs With the last Bear Market in 2008 The sharp pullback which the News is crediting it to the Virus How do a Technician Interpret on the Chart without the news  factor ? I would earmarked it as an first important indication (in built fear) occuring in the US President Election Year It would be better to review Gold & USD Chart for Safety and Fear What remains to be observed approaching US Presidential Election is;  If the Gold Price Continue to Hold & remain Higher and Will USD perform Strong With Historical Low Interest Rates Gold is Good Asset to offset Risk. Interesting thing to observe will be Cryptos and related Stocks & Technology I think some exposure to Crypto is Quintessential (Around the Sell in May and Go Away Season of Correction) Awaiting some opportunity ...........   .........   .......  ...... Play if Safe with Stop Loss but also some Protection in Place or Fear will provoke your primitive Mind and Take over.   Enjoy Minoo  
    • If you decide to trade with IC Markets or Pepperstone or any other cTrader brokers, you can use Quantower platform for it.   
    • Date : 24th February 2020 Events to Look Out For Next Week 24th February 2020.The economic data has been and will continue to be overshadowed by the Covid-19 outbreak. The week ahead starts light, with the German Business Sentiment Index and Chinese Retail Sales on Monday. Leading indicators dominate the releases, but the event of the week is the US GDP and Consumer Confidence, which should shed light on whether the epidemic is visible in the data globally.Monday – 24 February 2020 Japan – Emperor’s Birthday Retail Sales (CNY, GMT N/A) – China’s retail trade growth stood at 8 percent year-on-year in December 2019. However a strong decline is expected for January, following the recent releases indicating that new car sales plunged 92% in China in February and airline traffic is expected to post the first drop since 2011 amid heavy virus containment measures in China. German IFO (EUR, GMT 09:00) – The German Business Sentiment Index released by the CESifo Group is closely watched as an early indicator of current conditions and business expectations in Germany. February’s numbers are expected to incline. Tuesday – 25 February 2020 Leading Economic Index (JPY, GMT 05:00) – The index is expected to show no change in the outlook of the Japanese economy and stand at 91.6. Gross Domestic Product (EUR, GMT 07:00) – German GDP is expected to have fallen by 0.3% on an annualized rate in the last quarter of the year, compared to 1.0% growth in Q3. Conference Board Consumer Confidence (USD, GMT 15:00) – Consumer Confidence is expected to have increased to 132.4 compared to 131.6 in the previous month. Wednesday – 26 February 2020 New Home Sales (USD, GMT 15:00) – The housing recovery should extend into 2020, assuming that mortgage rates remain low and Fed policy remains accommodative. The January new home sales should post a 2.3% climb to a 710k pace, after a dip to a 694k rate in December, versus a 12-year high of 730k in September. Trade Balance (NZD, GMT 21:45) – The Trade Balance measures the difference in value between imported and exported goods and services over the reported period. It will be interesting to see whether the New Zealand trade balance already posts an impact from the epidemic. Thursday – 27 February 2020 Gross Domestic Product (USD, GMT 13:30) – US preliminary GDP growth for Q4 is expected to trim to 2.0% from 2.1%. Durable Goods (USD, GMT 13:30) – Durable goods orders are expected to fall -1.5% in January with a -4.7% drop in transportation orders. Defense orders should fall by -29%, following the 101.4% December surge. Boeing orders declined to zero planes, following a dismal 3 planes in January. Tokyo Core CPI and Unemployment Rate (JPY, GMT 23:30) – Tokyo CPI is usually a good proxy for the Japanese economy’s overall inflation rate. In February, the CPI ex Food is expected to have stood at 0.9% y/y. The unemployment rate is expected to have climbed to 2.3% from 2.2% in December. Retail Sales (JPY, GMT 23:50) – Following a precipitous 3-month dive in October -December, due to a prolonged hit to exports from soft global demand and a slide in consumer spending following a nationwide tax hike, January’s Retail Sales are expected to drop to -1.1% on a y/y basis. Friday – 28 February 2020 Unemployment Rate (EUR, GMT 08:55) – The German unemployment rate is expected to have remained at 5% in February. Harmonized Index of Consumer Prices (EUR, GMT 13:00) – The German HICP inflation could rise to 0.3% m/m for February from the drop seen at -0.6% m/m last month. Gross Domestic Product (CAD, GMT 13:30) – A sharp slowing in Canada’s real GDP growth rate to 1.2% (q/q, saar) is expected in Q4 following the 1.3% Q3 growth. This should not add to the backing for a rate cut for the Bank of Canada. Personal Income (USD, GMT 13:30) – A 0.3% rise in personal income in January is anticipated after a 0.2% increase in December, alongside a 0.2% rise in consumption that follows a 0.3% December gain. Always trade with strict risk management. Your capital is the single most important aspect of your trading business.Please note that times displayed based on local time zone and are from time of writing this report.Click HERE to access the full HotForex Economic calendar.Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!Click HERE to READ more Market news. Andria Pichidi Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • Can I use this EA on my Hotforex platform? How do I do that? 
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.