Question About Lossing Money while on Margin

[Eager2Learn]

I am a day trader.

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?

 

[paszkman]

I am a day trader.

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

 

[Eager2Learn]

1) Yes
2) Yes

Then what is all the fuss? Why are people terrified of highly leveraged accounts?

 

[paszkman]

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]

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?

 

[smart_trader]

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.