Margin risks - Pinetree Securities

Margin risks

Margin risks

Increased potential loss

Just like the way using margin magnifies your returns, it can also put you under the risk of increased loss. Let’s take a look at an example of margin risks:

Example: You have $20,000 worth of securities bought using $10,000 borrowed and $10,000 in cash. When the value of the securities drops by 25% to $15,000, since the amount you borrowed from your broker stays at $10,000, your equity becomes $5,000. That means your equity drops from $10,000 to $5,000, which is a 50% loss.

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