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Safe Stock Market Decisions on Margins

13 June 2007 - Markets - Editor

Stock market operations on margin money are no different from any other loans. It is common to give margin buying a bad name, but one should not blame a legitimate trading option for careless, poorly informed, and avaricious decisions which individuals may take. Margin buying has helped a number of veterans make their marks on trading floors. It remains a valid resource for skilled investors.

Margin buying can lead to profits and to success provided that some simple investment principles are followed. The basic approach should be to use specialist knowledge rather than greed for aggressive stock market moves. Margin buying based on no more than flimsy rumors and overly optimistic projections entails unacceptable risks, but such operations in a sector which one knows well, should cause no harmful losses.

Insider trading restrictions do not apply to competitors. It is a serious crime to trade in securities over which you have executive powers or confidential information, but it is entirely legitimate to make considered moves based on developments with respect to competing companies which you watch closely and understand well. Price increases, new products, separation of unproductive people, and M&A moves, are examples of competitive moves which anyone can analyze and use for margin buying opportunities.

Nothing is certain in life, and the stock market is no exception! Be prepared for a total capital loss every time you make a margin buying decision, and plan ahead on what you must do should you receive a margin call. Part of this philosophy is to set aside portions of your winnings to future margin buying opportunities. This way, you will have many chances to make windfalls, while keeping inevitable losses within manageable limits.

Margin buying is a form of gambling in stock market terms. You can have a ball provided that you set strict financial boundaries for your ‘wild’ ventures. Study specific securities well, keep abreast of new technology, and do your number crunching with diligence. There will be loads of opportunities for margin buying in which you have high chances of success.

Good luck with your margin buying: do not hesitate to drop in on our forum to share your experiences and to seek opinions as well.

 


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