Wednesday, December 3, 2008

Margin: Friend or Foe?

Since I began writing about my trades with the funds of a friend, I have been talking about using margin to leverage my purchases, but I must warn those of you that are not familiar with these types of trades that the use of a margin account can be very dangerous.

While allowing you to double your returns on a trade, it can also double your losses and should not be used lightly. For me, the sweetest leverage is to go long in an inverse EFT that trades at 2X the inverse of the index it represents plus margin.

This gives me what I would consider a leverage of 4X. This was how I was able to grow that 25,000 so fast on the first day. I'll talk more about inverse EFT's another time, but for now just remember that margin accounts can be your best friend and your worst enemy at the same time, so be very cautious if you use it.

Have a good one,

1 comment:

  1. Roger,
    Will you please post the automated version of your stock grader if you have it.