Purchasing Stock on Margin, Why Take 2-1 Leverage When You Can Get 200-1?

Purchasing stock on margin was very common before the advent of options trading but now the market for leveraged trading is done primarily in the forex and treasury bill markets where the leverage ratios are significantly higher and the transaction costs are small relative to the average size of trades made.

Rather than purchasing stock on margin, the vast majority of day traders opt to take their transactions into the options market. There are limitations in this market but the ability to increase buying power (levering up) with the use of an option trade is so much more efficient and less risky (you can only lose what you put in) that it has 마진거래 become the investment vehicle of choice for high flying equities day traders. A couple of factors make buying options preferable to purchasing stock on margin:

  • Option trades require less monitoring
  • Margin trades have severe limits on leverage
  • Margin trades require initial collateral
  • Margin trades accrue interest expense on overnight positions
  • Margin accounts can be revoked and liquidated at any time

Needless to say margin accounts are much more high maintenance and don’t typically offer any sort of significant return on investment advantage to similar option trades.

Unlike purchasing stock on margin, these days retail traders are increasingly trading on margin in forex leverage accounts. These accounts offer very high leverage ratios with low transaction costs and narrow spreads. The high volume of trading activity makes for an extremely liquid market. These traits (narrow spread, no commissions, and high leverage) have made forex trading very popular in the United States and elsewhere amongst retail investors who were denied access to these markets previously because of capital restrictions.

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