ex. if you had $1000 of your money in your account and spend $1000 to buy slw you're not on margin and worst case scenario your stock value can go to $0.
on margin - if you have $1000 of your money in your account you can have $5000 buying power. You go and spend $5000 to buy slw the most you can loose is $5000, therefore you loose your initial $1000 investment plus $4000 on loan from the broker. I don't have exact figures BUT let's say you paid $10/sh on margin, and the stock drops to $8 your broker may send you a margin call and you will have to sell some of your stock to cover the margin and take a loss.
If there is a market crash and you're not on margin you don't have to sell any of your stock even though your investment lost 50% or more, you can wait it out and wait for it to bounce back up. On margin you have to sell and pay your "creditor" first, take losses and hope the value doesn't depreciate more because you will have to liquidate more until all of margin is covered - meaning you may end up owing $4000 to the broker if stock went to $0.
This is just an example. Margin calls occur somewhere around 20% loss if you're fully invested. On top of that you pay interest on "borrowed" money.
Hopefully I didn't confuse you any more. And to my understanding different brokers calculate margin amounts differently and I think that goes also for margin calls as well.
Thank you RC for all your wisdom analysis! You are a charm. I only pay cash for my stocks. That margin stuff sounds alot like Ben and his banks lending money for mortgages to people who will be in debt and then everyone seems to lose money in the end. When the market does crash, it will be from the mess the fed has created once their king dollar all talk no action starts to tank. There will be more days like last Friday when the dollar got flushed and the market lost 400 points! They are purposely pulling back gold, silver and oil with their phony hype of a stronger dollar so they can get in low and play long to replace all the millions of dollars their financial banks lost on wall street. Goldman Sachs is leading the pack. I sure hope this stock comes up soon 16+ a share. It's way overdue. It took a 5% hit today......