The margin trading sweet spot: A perfect balance between appetite and fear
People sometimes just have this gut feeling that they should invest in a specific company. Despite funneling all their money into a specific stock, they still want to spend more. So they borrow from brokers instead. Basically, this is what margin trading is all about. According to the law, traders are allowed to borrow as much as 50 percent of the buy value of the stock. It significantly increases the chances for a profit, but the risks will become greater as well. Image source: investopedia.com Margin investors are indeed brave souls. They are trading with the concept of borrowing money from the casino so that they could play a few rounds on the blackjack table. Nonetheless, there exists an interest rate sweet spot where they could create a solid case for borrowing other’s people money to spend on stocks. To find it, all a person needs to do is refer to some graphs and a couple of historical data. It states that after-tax market returns of 9 percent will do rather swi