A Guide for Buying ETFs on Margin 5.00 / 5 (100.00%) 1 vote

The concept of margin trading is simple to learn and understand.  When you trade on margin, you may be able to place a trade that is larger than your account.  This enables you to make big profits even with a small account.  However, you need to be careful when using this concept as it can also result in big losses. Nonetheless, a guide for buying ETFs on margin can help you make consistent profits.

When you use margin trading, you are in fact borrowing money from the broker.  For example, if a broker is offering you a margin of 100:1, you may be able to trade USD 10,000 with USD 100 in your account. This can be a big advantage as even small fluctuations in the market can help magnify your profits.

Top Rules for Margin Trading

A Guide for Buying ETFs on Margin

If you want to use margin trading, you first have to pay and deposit a specified amount of money to the brokers. This enables you to use the agreed leverage so that you are able to increase your profits substantially. With a leverage of 100:1, you may be able to operate with a sum that is hundred times more than the sum in the trading account.

It is important that you choose the size of the margin to be at least 0.5% of the sum that you wish to trade in this market. When you are able to control a larger amount of money even with a small account, you may be able to increase the return on your investments.  You need to find a broker of your choice before you start using margin trading to place a trade.

Margin trading is similar to taking a short-term loan from the broker. Before you start placing a trade using margin, you may have to deposit the money into the trading account.  The amount of money that you may have to deposit depends on the agreement you have with the broker.

Tips for Minimizing Risks of Margin Trading

Although margin trading can enable you to earn substantial profits even with a small trading account, you need to understand that it is also risky. You may also lose big amounts of money if you are not careful.  If you are a new or inexperienced trader, it is important to avoid using margin trading until you have gained adequate knowledge and experience about this trade.

It is vital to use stop loss so that you are able to minimize the losses if any. If the trade that you had placed ends in a loss and there is no sufficient amount of money in the account, the broker may execute a margin call and you may able to place a trade only after you have deposited money in your account. A guide for buying ETFs on margin can help you plan your trade without risking the investment.