Understand How Margin Works Sample Clauses

Understand How Margin Works. For example, let’s say you buy a share for $50 and the price of the share rises to $75. If you bought the share in your broker account and paid for it in full, you’ll earn a 50 percent return on your investment. But if you bought the share on margin-paying $25 in cleared funds and borrowing $25 from a margin product provider-you’ll earn a 100 percent return on the money you invested. Of course you’ll still owe the lender $25 plus interest. The downside to using margin is that if the share price falls, substantial losses can mount quickly. For example, let’s say the share you bought for $50 falls to $25. If you fully paid for the share, then you’ll lose 50 percent of your money. But if you bought on margin, you’ll lose 100 percent, and you still must come up with the interest you owe on the loan. In volatile markets, investors who put up an initial margin payment for shares may, from time to times, be required to provide additional cleared funds or securities if the price of the shares falls. You should be aware that the margin trading product provider might be able to sell your securities without notice to you when you don’t have sufficient equity in your margin account. Understand that your position may be liquidated at a loss and you will be responsible for paying the resulting deficit.