Margin and the 10th Crack Commandment
"Number 10, a strong word called consignment
Strictly for live men, not for freshmen
If you ain't got the clientele, say, "hell no!"
'Cause they gon' want they money rain sleet hail snow."
I get it; you have a brokerage account, you've got your hands a little dirty in the game, and now you think to yourself, "If I have more money to put on the table then my returns will be that much bigger." That means margin, and your broker is more than happy to give it to you.
What are Margin and Consignment?
You may have heard of consignment before. Its when a person or organization takes delivery of a product with the intent to sell it then give the money to the original seller. For example, if a few crates of weapons show up on a Venezuelan dirt runway and are used to overthrow a socialist dictator, you can say those weapons were given on consignment because they will need to settle up for them later after the smoke clears.
Margin is almost the same thing. Your broker will extend a line of credit to you so you can have more money to invest with them, and they will charge interest on every penny. Some may call it a loan, but you aren't pulling it out of your brokerage account to use on your mortgage. It's staying in their brokerage account so that you can use it on their products.
So know upfront that if they give you $25,000 on margin, then they will be getting every single penny back plus interest no matter if your trading strategy pays off or not. Some brokers require you to have a margin account if you want to trade specific derivates (like options)
Your broker is going to make sure you keep a certain amount of money in your account to mix in with the margin, so you aren't just trading all of their money and have no risk of your own or collateral. If you lose money and it dips below that number, then you usually have 24hrs to put more cash in the account to bring it back up to the minimum, or they close your positions, and you eat the losses and may still need to put cash in regardless.
Getting quantities of product on consignment and securities on margin both come with real risks. You want to get those shares of Tesla because you know they are bound to skyrocket, but if you're wrong, its a wrap. Do some real homework before you start taking loans out because the pusher man will get their money.