Does anyone here trade on margin. I have been researching it and in certain situations I think it could be a great way to increase ROI. Example if I can borrow money on margin @ 7 3/4% annual basis. I could buy a stock like PSEC that pays a monthly dividend which equals 12%. If the trading range stays in the 9-12 range purchase @ 10.500 range. It seems to me that I could add an additional 4% return to my stock that I own. I recognize if PSEC goes broke or it falls to $1 I would have to cover the margin call of potentiall $9. Thoughts
mud...would you buy stocks on a credit card (???), if the answer is yes, then it is OK 'for you' to buy on margin...'I never buy on margin', I have a hard enough time making a profit on my cash accounts...! $tagg...!
I am heavily margined - the problem comes when stocks fall hard and you need to cover so you have to sell your good stocks at the worst time. I do not recommend margin on a hold basis a little margin for a quick turnaround is OK, but even then if that deal goes south then its hard to get out. Its like payday loans or going to the casino - bad business. In my situation I always have my IRA to tap if I need to which still is probably bad business but at least I know that what I am doing is more gambling than investing. good luck.
I think the(your) key word is "trade" on margin. But you seem to describe a situation where you hold stock(s) long, instead of trade, to make 4% more in a perfect world?
Margin is simple, it can increase your profits and also decrease your profits. If you ever have a margin call then you took to much risk to hit a grand slam. You should never margin high risk stock, unless you trade ST.
So are you going to trade or use margin to hold long for the possibility of higher returns?, big difference...IMO!