What is everyones' attitude on Margin?

[Danmar]

I borrowed extensively from my previous employer to buy their stock when I was working. Not a margin loan and there could not be a margin call. I once used a margin loan to exercise stock options and hold the stock. I don't think significant margin loans are wise when retired. Risk and retirement don't mix very well.

 

[growing_older]

The few people I know who strongly advocated use of margin had very good results with it, until they didn't. As their confidence grew, they felt more comfortable with more margin and more risk, until an adverse market move lost all their previous gains plus more besides.

For myself, if I had nothing much to lose, then I could see using it to try to game the system into a big score more quickly. But as soon as I had a stake I would prefer not to lose I would want to avoid using margin or taking that much risk what I had accumulated so far.

 

[kumquat]

Margin is bad for you, too many trans fats.

I just like butter better.

 

[chinaco]

I've been trading for almost 3 years and have been using margin since day 1. Use a stop loss with every trade to eliminate a lot of risk

Good luck with the margin and shorting!

Psst- IMO there is a better approach. Read some of the posts on this forum for instruction.

 

[EarlyTwenties]

There's more to my strategy then to just use margin and stop loss. I'm I am going for short term trades only, and pay daily attention to my accounts. If I hit stop loss, ill rebuy when its lower and set up another stop. I'm up 30% January 2011 so something seems right.

 

[73ss454]

That's what happens when the market is going up.

 

[REWahoo]

There's more to my strategy then to just use margin and stop loss. I'm I am going for short term trades only, and pay daily attention to my accounts. If I hit stop loss, ill rebuy when its lower and set up another stop. I'm up 30% January 2011 so something seems right.

ET, sounds like you are doing great.

Please do us the courtesy of continuing your updates every month or so. Human nature finds it easy to post about our successes but very difficult to tell others when things don't go quite so well. Some of the most informative threads on this board are from those who were willing to share both their success and failures in the market. You will gain much respect here if you continue to post the outcome of your trading strategy.

If you're willing to do so, it would be best to start your own thread in the Stock Picking (Individual Security Analysis) forum.

Thanks, and here's hoping you do well.

 

[Ready-4-ER-at-14]

I've used margin for special cases. Ocassionally you want to buy and sell products that settle in different amount of time. Say stock take 3 days to settle and you purchased something that settles in 2 days, you might need a bridge loan. Not sure what the product was that settled quicker. May have been a CD, or option.

Also I have wanted to buy a specific stock both due to financials and chart action but needed a cd or bond to settle before doing so. Maybe even to capture a dividend.

Once I even bought a stock on margin to force myself to put away the money for investment savings vs a toy I really really wanted, but didn't need.

Thus I use options primarily to delay payment. I did speculate twice with margin. After two trades that went mostly well, I was dismayed that the broker made more than I had and I had all the risk.

 

[Gone4Good]

I'm up 30% January 2011 so something seems right.

30% per month (2,330% annualized) is respectable.

 

[73ss454]

There's more to my strategy then to just use margin and stop loss. I'm I am going for short term trades only, and pay daily attention to my accounts. If I hit stop loss, ill rebuy when its lower and set up another stop. I'm up 30% January 2011 so something seems right.

Did you choose Red or Black?

 

[EarlyTwenties]

ET, sounds like you are doing great.

Please do us the courtesy of continuing your updates every month or so. Human nature finds it easy to post about our successes but very difficult to tell others when things don't go quite so well. Some of the most informative threads on this board are from those who were willing to share both their success and failures in the market. You will gain much respect here if you continue to post the outcome of your trading strategy.

If you're willing to do so, it would be best to start your own thread in the Stock Picking (Individual Security Analysis) forum.

Thanks, and here's hoping you do well.

Definitely. I will.

Here's a failure which I learned from that taught me to use stop losses:

I bought $40,000 (w/ margin) worth of one stock that went down 70% in one day. Margin called auto sold the stock at $20,000+ loss. Had I used a stop loss. I would have only lost 5%, and would have had a huge buying opportunity.

 

[73ss454]

Fooling with stocks that drop 70% in one day is usually not a buying opportunity.

 

[ERD50]

Definitely. I will.

Here's a failure which I learned from that taught me to use stop losses:

I bought $40,000 (w/ margin) worth of one stock that went down 70% in one day. Margin called auto sold the stock at $20,000+ loss. Had I used a stop loss. I would have only lost 5%, and would have had a huge buying opportunity.

I've seen stocks like that drop overnight - often times the bad news (or rumor) comes out after the close. So if it opens down 70%, and your stop loss was at 5%, you'll get sold out at the open.

What I suspect will happen is that you will take a lot of 5% losses (especially in volatile stocks). Those same stocks might have jumped right back to plus 10% in no time, and you are left with a 5% loss.

But as REWahoo says - keep reporting, you are bound to learn from it.

and would have had a huge buying opportunity.

How would you know when to get back in? Clearly, you didn't expect a 70% loss, or you would have been out (or short). So would you have jumped in at -10%, -20%, -30%, -40%, -50%, -60%? Or played it perfectly @ -70%; or waited for a -80% that never appeared?

If you got in at any of those earlier steps, and then set your 5% stop loss, you would have added to your losses. How's this work again?

-ERD50

 

[Bestwifeever]

Margin is bad for you, too many trans fats.

 

[HpRyder]

I've used margin selectively. At Wells Fargo Brokerage, to buy before transfer of purchase funds were complete. At metals dealer to trade metals. If prices keep on an upward trend, I'll pay off the margin balance with trading profits & own a bunch of palladium.

 

[Gone4Good]

So if it opens down 70%, and your stop loss was at 5%, you'll get sold out at the open.

Also, a stock that drops 70% in one day is going to have large gaps in the bid price on the way down. You're looking to sell at 5% down, but the next bid is 40% lower and you get executed there whether you like it or not.

Or . . .

"TRADING HALTED: NEWS PENDING"

Or . . .

 

[FIRE'd@51]

The fact that the dynamic portfolio insurers blew themselves up in 1987 is pretty good evidence that relying upon stop-losses can be a faulty strategy. And that was on a broadly diversified index. IMO, buying exchange-traded puts is a superior way to create a foolproof stop-loss.

 

[chinaco]

Money for Nothin' (and Chicks for Free)

YouTube - Dire Straits - Money For Nothing (From "Live At Knebworth" DVD)

 

[ERD50]

Here's a failure which I learned from that taught me to use stop losses:

... Had I used a stop loss. I would have only lost 5%, and would have had a huge buying opportunity.

Geez, I forgot the obvious and recent example of stop-loss pain: Can you say "Flash Crash"?

-ERD50