Stock Trading and Other Things

How to use margine option in day trading profitably?

I am new to online trading and not clear with the option "margine" in day trading can any one tell me how to use it effectively?

Public Comments

1. What Does Margin Mean?
1. Borrowed money that is used to purchase securities. This practice is referred to as "buying on margin".

2. The amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account.

Buying with borrowed money can be extremely risky because both gains and losses are amplified. That is, while the potential for greater profit exists, this comes at a hefty price - the potential for greater losses. Margin also subjects the investor to a number of unique risks such as interest payments for use of the borrowed money.
If your planning on day trading (effecting four or more round trip trades within a 5 business day period), then you’ll be a patterned “day trader”. This type of activity requires a minimum maintenance amount of $25,000.00. You’re leveraged at a rate of 4 to 1. For every point your stock moves, your account equity moves at the same relativity (e.g. for every dollar that the stock moves you either gain or lose four dollars).

2. Buying on margin, loosely defined is buying stocks with someone else's money (consider it a loan with negligible interest on whatever is in your portfolio) Stocks, bonds and mutual funds are rated by your brokerage as to how much can be lent to you by them. If your own high risk stocks, like MTLQQ (government owned GM) the maintenance requirement will be close to 100%. With good stocks in your portfolio (KFT, GS, AAPL, etc) the maintenance amount required will be considerably lower allowing you to get a "loan" somewhere around 80% current value. So depending on how big and what the quality of your portfolio is, it will determine your credit line, which changes very frequently when the markets open. If you ever recieve a "margin call", your in too deep, two choices sell all or part of your recent purchase or fund your account with enough cash to cover it, do not ignore a margin call, your brokerage can liquidate some or all of your position(s) to cover it and it dosen't matter to them if YOU have a loss or not.
Beyond that, never accept people's advice on what you should buy, how much you should buy, and KNOW YOUR RISK TOLERANCE beforehand. Do your own research (lots) make an "informed" decision before buying anything. or fly by the seat of your pants and cross your fingers.
In my opinion you should trade a min. two years before looking into options, but you have to know what your doing, It can be a excellent way to hedge your bets, start with the book "Options De-Mystified" and do not forget about putting in stop-loss orders on your trades to limit loss. start small to learn, then move up to the big trades. If you have a capitol loss carried forward from previous tax years, you can daytrade till the hens come home and will not be subject to short-term cap. gains. If you are "in the black" you'd be better off holding for a year minimum for the 15% rate. good luck!

3. Before using margin, first prove to yourself that you can make money without it. Margin in itself does not define profitability. Rather it magnifies both losses and gains.