# Question About Lossing Money while on Margin

#### Eager2Learn

##### Newbie
9 0

So let's say I open an account with \$30,000 and have a 4:1 Margin. This means I have a total buying power of \$120,000.

If I buy 1000 shares of a stock at \$60, and it drops to \$59/share, and I sell, I would have lost \$1000.

Now my question is:
1) Does that \$1000 come out of my "cash account"? i.e. I will a \$29,000 left?
2) Will my total buying power with the 4:1 be \$116,000?

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#### paszkman

##### Established member
649 54

So let's say I open an account with \$30,000 and have a 4:1 Margin. This means I have a total buying power of \$120,000.

If I buy 1000 shares of a stock at \$60, and it drops to \$59/share, and I sell, I would have lost \$1000.

Now my question is:
1) Does that \$1000 come out of my "cash account"? i.e. I will a \$29,000 left?
2) Will my total buying power with the 4:1 be \$116,000?

1) Yes
2) Yes

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#### Eager2Learn

##### Newbie
9 0
1) Yes
2) Yes
Then what is all the fuss? Why are people terrified of highly leveraged accounts?

#### paszkman

##### Established member
649 54
Then what is all the fuss? Why are people terrified of highly leveraged accounts?

It is a bit early in the morning for me so i may have got this wrong, but you would have lost 1k on 15k margin. Doesnt look so bad @ 4:1 but if margin is 100:1 you can see how dangerous it can get.

#### Eager2Learn

##### Newbie
9 0
It is a bit early in the morning for me so i may have got this wrong, but you would have lost 1k on 15k margin. Doesnt look so bad @ 4:1 but if margin is 100:1 you can see how dangerous it can get.
I just want to make sure I am not missing anything. Margin is basically just more buying power? There aren't some weird multipliers or anything right? It just means that I would have funded my account with \$10,000, but with 20:1 I have \$200,000 buying power.

The issue rises when people don't control their losses? If I invest 1000 shares in a stock that drops \$1, I would have lost \$1000. Exactly \$1000 is removed from my cash leaving me with \$9000. Correct?

##### Newbie
2 0
Using a bad money management is the problem with margin.

Let's say you bought a stock and it dropped , but you still think that i'll go up , so you buy more shares (average down) and keep doing that every time it goes down. They call it ( Hold and hope). That's the most dangerous thing margin traders can do. It's the end of their trading life.

Margin is a very good tool for a day trader but stay cool and cut your losses once you don't feel good about the trade.

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