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Margin Trading Advantage and Disadvantage

Author: nicolas tang

leverage trading

If you are currently trading cryptocurrency, you should start to trade futures. As the manager of your own brokerage account, there’s a very good chance you were asked during the registration process whether or not you’d prefer it to be a cash account or a margin account.

What’s the difference?

A cash account allows you to only use deposited cash to buy and sell stocks, or to purchase basic stock options. This type of account doesn’t allow investors to short-sell, or bet against stocks. Thus, if you’re considering a cash account, understand that your primary purpose will be to buy low and sell high.

On the flip side, you can opt for a margin account. Simply put, margin accounts let you borrow capital against your deposited or invested equity. As you might imagine, there are a handful of reasons why margin trading can be beneficial, and there are an equal number of terrifying risks you should be aware of.

Buying on margin trading: The pros

The greatest advantage to buying on margin is that it boosts your purchasing power. When you have a relatively small amount of money to work with; margin can be used to boost your returns or help diversify your portfolio.

Buying on margin trading: The cons

But, as you might imagine, buying on margin comes with risks. The biggest risk you have when buying on margin is that you don’t know, with any certainty at least, that the stock you purchased or short-sold will do what you expect. Even the best stock pickers in the world are wrong around a third of the time, which means there’s a lot of inherent risk in playing with margin.

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Click here to read about Margin Trading Crypto Explained

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