Leverage is often spoken of concerning the real estate market, but stock market leveraging is a practice often used by investors. The basic concept of leverage in the stock market, also called margin trading, involves borrowing capital to invest in more stock than what you can afford on your own. Stock market leverage can result in an increase in your return on investment, but you can lose more money than when buying stock using only your funds.

Trading stock using margin starts with opening a margin account with your brokerage firm. This type of account differs from a regular cash account that you open with a financial institution.

Publication (), Investment Income and Expenses

You must pay a deposit that acts as your margin, or initial equity in the account. In most cases, you can borrow up to 50 percent of your margin to invest in financial securities.

You must also pay interest and fees for borrowing money. After the purchase of the stock, you must keep a minimum amount of equity in your margin account. According to the Securities and Exchange Commission, you must maintain at least 25 percent of the value of your purchased equities in your margin account at all times. If the value of your securities drops substantially, the brokerage firm can issue a margin call, requiring that you repay all or a portion of your loan.

According to the Securities and Exchange Commission, the Federal Reserve Board, FINRA, the New York Stock Exchange and other self-regulatory exchanges determine the specific rules established to govern stock market leverage. Brokerage firms often establish their own rules regarding margin accounts.

In the case of a margin call, the brokerage firm does not need your permission to sell a portion of the financial securities in your account.

You also do not get to decide which assets the firm sells. Stock market leverage offers investors the potential to earn a higher return on their investment because they are able to buy more shares than with using their own money alone. The primary risk associated with margin trading is the ability to lose a substantial amount of money in a short period of time.

The fact that you borrowed money to invest in stock results in stock broker commission tax deductible possibility of losing more money than you personally put up to buy shares. The sale home depot stock price yahoo assets in your account by the brokerage firm can result in additional losses.

Understanding the margin agreement given to you by your broker and the rules of margin trading can help minimize risk.

Registered Loan Broker Home Training Program

Each week, Zack's e-newsletter will address topics such as retirement, savings, loans, mortgages, tax and investment strategies, and more. At the center of everything we do forex market trading software download india a strong commitment to independent research and sharing its profitable discoveries with investors.

This gold australian stock exchange to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. These returns cover a period from and were examined and attested by Baker Tilly, an independent accounting firm. Visit performance for information about the performance numbers displayed above.

Skip to main content. What Is Stock Market Leverage? More Articles What Are the Benefits of Selling Stock?

How to Forecast the Stock Market How to Use Home Equity to Buy Another House The Advantages of Leveraged Investing Small vs. Large Company Domestic Stock Lucasville trade days dates Allocation Stocks That Perform Well During the Christmas Period.

How Trading on Margin Works Trading stock using margin starts with opening a margin account with your brokerage firm. SEC Requirements After the purchase of the stock, you must keep a minimum amount of equity in your margin account.

Rules According to the Securities and Exchange Commission, the Federal Reserve Board, FINRA, the New York Stock Exchange and other self-regulatory exchanges determine the specific rules established to govern stock market leverage. Potential Stock market leverage offers investors the potential to earn a higher return on their investment because they are able to buy more shares than with using their own money alone.

Risk The primary risk associated with margin trading is the ability to lose a substantial amount of money in a short period of time. Securities and Exchange Commission: Margin — Borrowing Money to Pay for Stocks FINRA: Investing with Borrowed Funds: Why Young People Should Buy Stocks on Margin.

Recommended Articles How to Tithe Using Stocks Are Stock Transaction Fees Tax-Deductible? How Are Stock Market Losses Treated for Tax Purposes?

Day Trading Expenses You Cannot Deduct from Your Income Taxes - dummies

What Is Considered Holding Long-Term for Stocks? How do I Convert Stock Market Prices Into Returns? Is Debt to Capitalization Ratio the Same as Leverage Ratio? What Are the Hours for the Dow Jones?

Tax Consequences of Purchasing Stock Below Fair Market Value. Money Sense E-newsletter Each week, Zack's e-newsletter will address topics such as retirement, savings, loans, mortgages, tax and investment strategies, and more. Editor's Picks "What Does ""Heavy Volume Price Drop"" in a Stock Mean? Should You Sell Stock Before or After the Dividend Pay Date? What Is Better Gold Mutual Fund or Gold Itself?

How to Study the Stock Market. Trending Topics Latest Most Popular More Commentary. Quick Links Services Account Types Premium Services Zacks Rank Research Personal Finance Commentary Education. Resources Help About Zacks Disclosure Privacy Policy Performance Site Map.

Fees v. commissions: Different tax advantages

Client Support Contact Us Share Feedback Media Careers Affiliate Advertise. Follow Us Facebook Twitter Linkedin RSS You Tube. Zacks Research is Reported On: Logos for Yahoo, MSN, MarketWatch, Nasdaq, Forbes, Investors. Logo BBB Better Business Bureau. NYSE and AMEX data is at least 20 minutes delayed. NASDAQ data is at least 15 minutes delayed.