Investing for Beginners .EU, investing

investingforbeginners.eu The person that is buying a share of stock is convinced he knows something that the other person who's selling it to him does not know. There's no zero sum game in Wall Street.
Bernard Madoff

Costs of Buying Stocks on Margin

 

Buying on Margin

Costs of Buying Stocks on Margin

Margin Call

The Pros and Cons

Psychology: Is it worth?

 

 

We won’t talk about the possible losses in here. The goal of this paragraph is to explain what costs investors are facing when are buying on margin. Despite of all regular costs (as trading fees, depository fees, currency conversion fees if necessary, account fees, spread) when trading in stocks or other securities, investors also face costs for borrowed capital. 

 

That means every investor who buys stocks on margin is taking a credit for which he has to pay interests. Interests are paid for the amount and the period of the borrowing. Interest rate depends on the currency of the credit and market conditions. Of course, brokerage company (investment bank) tries to get some profit premium from giving the credit. 

 

Technically, the more interests investor is paying the higher are costs of buying on margin. If interest rate is lower than return rate, investor makes profit, but if interest rate is higher that investors return on investment then he is at the loss. 

 



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