Buying on margin can be a very profitable vehicle if used deligently. It's definitely not for the novice trader/investor. For those who are thinking of utelizing margin, ask yourselves: Is the interest charged on the amount borrowed worth my my trading/investing strategy? In order to answer that question, one must also ponder on the element of duration of the loan borrowed.
For example, I trade on wide margin in my personal as well as my hedge fund accounts. Since I have naked calls priviledges, I get charged 1.25% below the street's standard... This is due to the fact that naked calls require lots of margin. They fall under a different catagory of margin requirement than stocks. To that end, I usually borrow on margin to write deep in the money calls, knowing that my shares will get taken away from by option expiration day. So, I calculate the amount that I'm borrowing versus the net amount I'll make from the options premiums...and that should give me a good indicator fo where I stand.
Also, be advised that the interest charged on margin can be off-setted against capital gains. So, really, if you end with capital gians at the end of the year, your margin interest can be written against it. However, it's important to note that interest charged on margin cannot be carried over like regular capital gains can!
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