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The Magnifying Effect of Margin

Dashboard > Chapter 10: Trading on Margin > The Magnifying Effect of Margin

The Magnifying Effect of Margin

A Basic Trade to Illustrate the Magnifying Effects of Margin:

"This is your brain. This is your brain on margin."

Here's how margin works and gives you an idea on the math behind it.

MARGIN STORY ONE: You buy 1,000 shares of DOW for $10 a share with no margin. You just pay cash.

A year later, you sell it for $20. Awesome. You doubled your money.

You have $20,000. Woot. Compound return: 100%. By the way, here's how you compute returns: (Ending amount – Beginning amount) ÷ Beginning amount × 100...

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