How to Buy Stocks on Credit
Stocks can be bought with credit in a variety of ways. However, leverage stock purchases increase the risk that you will not be able to withstand a meaningful drop in stock prices for an extended period of time. In addition to capital loss, the possibility of trading duress can cause you to make bad investment decisions to mitigate losses. If you are right, however, the rewards will be directly commensurate with the risk you undertake. In other words, you must be more right when buying a stock on credit than with a standard brokerage account.
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Instructions
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Look at your existing stock brokerage account statement. Exclude investment retirement accounts, because you cannot borrow against them under most circumstances. Depending on your portfolio of stocks and bonds, your brokerage account can usually be margined by about 50 percent.
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Borrow against assets held in bank accounts. This can include certificates of deposit, money market funds or pledged assets that have value in excess of the loan. You will be making a bank loan that borrows against deposits and funded into your brokerage accounts. These amounts deposited can then be margined as well. Review your life insurance cash buildup policy. These are eligible for similar treatment as bank loans.
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Short stocks successfully and you will create a credit balance. This amounts to an interest-free loan against stocks that have declined in value. The available credit increases with the profit in the shorted stock and is a no-interest loan.
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Borrow against your credit card. This is expensive money but it can be done quickly. Deposit the money at the brokerage office and trade against the borrowed amount (which, being cash, can be leveraged again at the brokerage office).
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Contact friends to borrow money or to cosign a loan. You may need to pay them some return of the profits and pay interest-rate charges. It is better to borrow against properly margined securities to limit your ability to get into trouble.
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Tips & Warnings
Stocks under $5 cannot be eligible for margin. Consider carefully your need to increase leverage, especially if it is to invest in a penny stock or rumor stock.
If you have margined a stock that falls below $5, you will have a margin call and will need to provide capital equal to the difference between the current price and the $5 limit
