When you buy stocks, you are buying a piece of a company. You become a part owner of that company and, as the company grows and prospers, the value of your stock goes up.
When you buy stocks on margin, you are buying those stocks with money borrowed from your broker. This allows you to buy more stocks than you could afford if you were paying for them outright.
But there is a risk involved with margin buying. If the stock price falls, you may be required to sell the stock at a loss in order to repay your loan.
That’s what happened to one investor who decided to buy $50,000 worth of stock options on margin. The stock price fell and the investor was forced to sell the stock at a loss.
This is a cautionary tale about the risks of margin buying. While it can allow you to buy more stocks, it can also lead to big losses if the stock price falls. So, if you’re thinking about margin buying, be sure to understand the risks involved.
