11-10-2014, 12:37 AM
(11-09-2014, 09:48 AM)Joey Batz Wrote: Oh really? I didn't even realize that. I skimmed the comments to see what people were saying and I saw those numbers. I don't even know what it means to be 20:1 margin (or more aptly, I don't know how someone just becomes that), but it furthers my point in showing how complicated and risky day trading is. Me personally, I'd rather just own shares of high quality businesses and reap their profits in dividends. I think I'd be hard pressed to find someone here who disagrees with me.
Thanks for the read and for the information!
I totally agree with you that day-trading is risky and I prefer owning the stocks for eternity (eternity = until they reduce dividends) myself.
Having X:1 margin means that for every $1 you have in your trading account your broker allows you to buy with $X.
In order to be allowed margin you need to prove your broker that you can back i up in case you lose the margin itself
Standard brokers will allow 4:1 margin for day-traders and 2:1 margin for over-night traders.
The fact that he is allowed 20:1 margin suggest that he's either trading in futures (not stocks) or that he is using a "prop account".
Having a "prop account" means he's basically trading for a company where he placed a down-payment for the initial amount and they are "lending" him the margin from their own capital.
Either scenarios is too risky for my blood.
When you are using X:1 margin than loosing $1 means you are loosing $X real money amount so trading with 20:1 and loosing 5% (100%/X=100%/20=5%) in a single trade means you wiped yourself out 100% of your capital...