Margin Accounts: A Double-Edged Sword
by John Gannon
The use of leverage magnifies an investors returns on the upside, but also magnifies losses on the downside.
In this article
- How Margin Accounts Work
- Margin Requirements
- How It Works: An Example
- Margin Trading Risks
- Do Your Margin Homework
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NASD has written this article because we are concerned that many investors underestimate the risks of trading on margin and misunderstand the operation and reason for margin calls. Investors who cannot satisfy margin calls can have large portions of their accounts liquidated under unfavorable market conditions. These liquidations can create substantial losses for investors.
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