From time to time, I am asked how margin in the stock market works. Here is a simple explanation of how the basic leverage works. Margin is leverage and leverage magnifies both profits and losses. But, that is only part of the story . . .
Stock Goes Up $5.00 Per Share
Assume you purchase 1,000 shares of DEF priced at $10.00 per share. Your total purchase is $10,000 plus commission and fees. (For this example, we will assume there were no commissions or fees.)
You now owe the brokerage firm $10,000 on settlement date. Read more »