The Margin Account Technique 

The margin account of advance account may be the first technique leverage that the investor will find. With an account like this, one can get more profits from his/her money, due that other people will finance the securities one buys. For example, nowadays it is perceptive an advance or deposit of a guarantee of a 50% for the initial acquisition of all the securities admitted to quotation in the New York Stock Exchange (NYSE), and in the American stock Exchange, as also in the over-the-counter market.

To acquire one of these securities for $10,000 in a margin accounts you will only need $5,000; the other $5,000 will be financed by the stock exchange agency that maintains ones account.

The interest charged for the difference pending in this account is slightly superior to that of the preferential type of interest. But, one has knowledge of some other aspects and characteristics of this type of account. If the acquired securities through this account suffer a substantial fall on their price, the client immediately will receive a note of “replacement”.

A note of replacement is a call made to the client to replace the money or the necessary securities to again balance the accounts, at least, up to 25% of the market value of the securities.

In the case of debentures of societies or state bonds one has to advance less money because the stock exchange agencies are authorized to finance a greater portion of the operation.

Most of the small investors do not know about the following modality of credit with securities as guarantee: it is a loan with no specific finality that is applied offering as guarantee some securities that are already completely paid; this credit can be used to finance several types of operations such as, for example, the buying of real estate, the opening of a new business or the payment of studies.

Commercial banks charge for these loans some substantial lower types of interests than for loans with personal guarantees and they equally lend between 70 and 90% over the market value of the package of securities. However, many commercial banks have conditions over the amount of such loans (by general rule, a minimum of $25,000) and about the type of securities that serve as guarantee (for example: that they be state bonds or society debentures or shares admitted to quotation that are sold over a certain price).

It is clear then that the loan with no specific finality is a very useful tool to acquire more benefits from ones assets. For all what has been said, one might have taken in account as how the margin enlarges ones profits and unfortunately also ones losses. This mechanism of credit as seen allows one to finance part of the operation and due to it, to buy a greater number of securities.

If the securities that one has bought increases its value ones account will have increased its purchasing power. Having increased the balance of ones account will permit one to buy more securities of the same type or of a different type. However, the margin is something one has to use with the tact and respect that any type of debt require, so use it, but do not abuse it.