What Is Buying Stock on Margin?

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Buying stock on margin is when an investor borrows money from a bank or brokerage firm to purchase stocks. Be careful, and learn about rates of interest when working with margin account by considering advice from a financial analyst in this free video on the stock market.

Part of the Video Series: Stock Market Tips & Facts
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Video Transcript

Have you ever borrowed money, to buy stock? Hi. This is Roger Groh, at Groh Asset Management. If you have borrowed money to by stock, than you've bought that on margin. Why do that? Well, in a situation where you believe that the price of the stock was going to move up, and you were looking to leverage up your rate of return, well that's the most common way to go about it. It may be a situation where you've borrowed stock in order to sell it short. Sounds funny, but you can make money going both ways in the stock market, and in both cases, you've borrowed money or stock in order to consummate the transaction. The negative side to both? If you're wrong, you loose money quicker, than if you have not employed any margin or debt. Now, you need to check the rates of interest for margin accounts, and be comfortable for what that rate is. It may be significantly higher than you would pay if your were to take money out in a home loan for instance from your house. Effectively creating the same event. The spread could be as much as 400 basis points in today's market. Hope that helps. Be very careful when you're buying on margin. Know what you're doing beforehand. Use stop losses, be careful. I'm Roger Groh at Groh Asset. And thank you very much for spending time with me.

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