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My Financial Independence Journey » Investing » A Primer on Margin Accounts

20 Responses to "A Primer on Margin Accounts"

  1. Thanks for the new topics, margin investment. This another investment under your belt.

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    1. MFIJ says:

      I haven’t done any simple margin investments yet. But I wanted to get the primer on margin out of the way before I talk about using margin and puts, which is a strategy that I just started using.

      Reply
  2. Nice primer MFIJ! Margin can definitely be a tricky thing. Personally I don’t plan on ever using margin to make traditional purchases, however, down the road I definitely plan on using it to sell naked puts to boost my options income.

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    1. MFIJ says:

      I don’t plan on using margin to make traditional purchases either. But I think it’s important to understand how a margin account works before you want to get into selling naked puts.

      Reply
  3. Brick By Brick Investing | Marvin says:

    Oh margin! I use to be thoroughly acquainted with margin back in my “trading” days. I actually have had a margin call when I was trading the Euro and the brokerage allowed me to ride out the position over the weekend. Turns out my analysis was right and I ended up making $30k in 2 months

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    1. MFIJ says:

      $30K in two months is awesome! I’m guessing that’s something that you weren’t able to pull off on a regular basis.

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      1. Brick By Brick Investing | Marvin says:

        The euro was crashing at the time and I just rode the wave. I wouldn’t recommend FOREX trading to 99% of the people who ask me about it. Heck I don’t even do it anymore. With a family I have too many obligations to speculate.

        Reply
  4. Great post! Very informative and easy to read. I agree that in general margin interest rates tend to be 7 – 8% However, Interactive Brokers is usually much cheaper than that. Currently it is 0.78 – 1.65% depending on the amount that you are borrowing.

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    1. MFIJ says:

      I think my broker tends to be a little bit on the pricy side. But I’m not planning on keeping money on margin and racking up interest. I’ll be using margin and put selling so if I get assigned a stock, I’ll just transfer some money over from my emergency fund to cover whatever I owe.

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  5. I shy away from using margin because, like you pointed out, when things go wrong they go really wrong. I’m just not comfortable with the added risk.

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    1. MFIJ says:

      I would shy away from margin as well. But it couples greatly with selling puts. Stay tuned for some more articles outlining my thoughts on that subject.

      Reply
  6. Great breakdown of margin accounts! I have never had them, but have dealt with many investors who have. The thing that always made me shake my head was people who just racked up all sorts of margin debt and interest by making silly mistakes. It’s not for everyone and requires some attention to what you’re doing…BUT it can be a great tool. I have been wanting to open a margin account for a while and need to just do it. I want to have one so I can dabble in shorting stock.

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    1. MFIJ says:

      Thanks! I agree, margin can cost you a ton of money if you don’t know what you’re doing. That’s why I avoided it for so long. But felt confident getting a margin account now that I’ve developed an actual strategy for using it with selling puts.

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  7. Too many things can go wrong with using margin to purchase stocks so I won’t be doing that. Plus I can never tell the direction that a stock is going to move, although I have noticed if I sell it shoots up or if I buy it drops. So maybe my readers should use margin to juice their returns whenever I announce a sell. ;)

    I do like having the margin access though for selling naked puts. I’ll be looking forward to your primer on that.

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    1. MFIJ says:

      In the short term stocks always move in the opposite direction of the way I want them to. If I want them to go down, they go up. If I want them to go up, they go down.

      I’ll be using my margin account similar to how you use yours. It’s all about selling puts.

      Reply
  8. Integrator says:

    I have and still do make selective use of margin. Now it plays more of a timing role for me than a core part of my strategy. Margin has helped accelerate my investments over the years. I had been capitalizing my margin interest into my margin loan. When my loan ballooned over $250k, I knew it was time to take some action to bring it down to something more manageable, which is where it is today.

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    1. MFIJ says:

      A $250K loan! Wow! I can see why you wanted to scale that back. I’m not really interested in using margin by itself. For me, the fun comes in combining margin with selling puts. I’ve got a whole post coming up about that soon.

      Reply
  9. Untemplater says:

    That’s neat you opened an account. I currently don’t have one. I guess I could open one but I don’t have any plans to trade on margin so I never bothered. I just wouldn’t want to have to deal with possible margin calls.

    Reply
    1. MFIJ says:

      You don’t need to worry about a margin account for most normal investing. But margin accounts really let me be aggressive with put selling. I’ve got another article about that coming up. Outside of the puts, I don’t really plan on doing any margin trading.

      Reply
  10. [...] Financial Independence Journey: A Primer on Margin Accounts – Ever wondered about the basics of a margin account? MFIJ not only covers the basics, but lays [...]

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