Investing on margin is a method of leveraging your current invested asset value by borrowing money from the brokerage to purchase additional stocks. Margin Trading is not gambling; however it is a higher risk investment strategy which may yield significant returns when implemented effectively. Conversely, it may result in significant losses when executed poorly.
Trading on Margin increases your buying power, or ability to buy more stocks. However, just because you establish Margin Trading privileges in your Personal Investing account it doesn't necessarily mean you are required to invest in this manner. In essence, any margined securities are a loan collateralized by the cash balance equivalent of your net investment holdings (and margin rates apply).
Margin Trading has been known to amplify investment returns as well as losses. The main risk of Margin Trading is the ability to lose dramatically more than if investing in cash funds alone. Clearly, a Margin Trading strategy would not be suitable for a risk-averse fixed income investor.
There are restrictions and maintenance requirements for establishing a margin-approved trading account; furthermore, Margin is disallowed in certain accounts. Retirement Accounts, IRA's, and College Savings Accounts are not eligible for margin.
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