11-10-2014, 09:51 PM
(11-10-2014, 12:37 AM)daat99 Wrote:(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...
I've never been too familiar with advanced-style trading (says guy who just wrote article on investing in stocks). All this margin stuff sounds so bizarre. I'm trying to figure out how all parties come and make that a thing.
So your broker will just loan you money to trade? I grasp the concept that for every dollar he is trading, they are lending him $19 for those trades. But what if he picks winners? If he makes a dollar, where are they getting the $19 extra to pay him.
This, again, is why I just stick to dividend growth investing. As a matter of fact, it's a point that I didn't write in my article (because I didn't know about margins then): Investing is easier, safer, and simpler when you understand what a trade actually means and how all parties involved make money. I understand what a dividend is, where a dividend comes from, and why it comes to me. These margins, well, if I were ever a stock broker then I'd better hope that all my clients are dividend investors!