The concept of the margin is central to economic analysis. In economics the word ‘margin’ refers to anything extra. ‘At the margin’ means at the point where the last unit is produced or consumed. So long as the marginal cost of producing a commodity is less than its price, a firm will produce extra units.

Rational behavior requires thinking at the margin. All of these examples represent thinking at the margin.

The best example of thinking at the margin is deciding whether the benefit of working two extra hours per day is worth the sacrifice of study time. Thinking at the margin means that thinking the next step forward by adding some additional action.

Which of the following is a key idea in economic thinking? Incentives matter.

Margin strategies

1. Use margin for appropriate assets. Your investing goals for a given investment account should dictate whether or not a margin investing strategy is appropriate.
2. Be selective in what you buy on margin.
3. Keep it short.
4. Avoid margin calls.
5. Know when to get out.
6. Take a test drive first.

Margin may sound like a good way to boost your returns, but know what you’re getting into. Investing with margin, or borrowed money, might seem like a good way to boost your returns. But it’s important for investors to realize that it’s not that simple. Using margin dramatically increases your risk.

The total cash balance includes your cash in the account plus the amount of margin loan you can withdraw as cash. You can cash out any amount up to the total cash balance listed on the summary screen of your account. Taking a margin loan as a cash withdrawal is a way to borrow against your investments in the account.

The biggest risk from buying on margin is that you can lose much more money than you initially invested. A loss of 50 percent or more from stocks bought on margin equates to a loss of 100 percent or more, plus interest and commissions. In that scenario, you lose all of your own money, plus interest and commissions.

These risks include the following:

• You can lose more funds than you deposit in the margin account.
• The firm can force the sale of securities in your account.
• The firm can sell your securities without contacting you.
• You are not entitled to an extension of time on a margin call.
• Open short-sale positions could cost you.

Margin trading confers a higher profit potential than traditional trading but also greater risks. Purchasing stocks on margin amplifies the effects of losses. Additionally, the broker may issue a margin call, which requires you to liquidate your position in a stock or front more capital to keep your investment.

Long common stock on margin is a play that can be run across all time frames. However it tends to be run as a shorter-term trade, because it involves paying interest on money borrowed from your broker. Your time horizon may vary according to your investment objectives, skill level, risk tolerance and available capital.

You can keep your loan as long as you want, provided you fulfill your obligations such as paying interest on time on the borrowed funds. When you sell the stock in a margin account, the proceeds go to your broker against the repayment of the loan until it is fully paid.

Considerations. Your broker will allow you to trade from two accounts — one margined, the other not — if you wish to limit but not completely eliminate the use of margin. You can also arrange a lower margin limit on your account if you want a mild amount of leverage.

two to five days

A margin call is triggered when the investor’s equity, as a percentage of the total market value of securities, falls below a certain percentage requirement (called the maintenance margin). They purchase 200 shares of a stock on margin at a price of $50.

Here are five ways to avoid a margin call.

1. Know WTF a margin call is.
2. Know what the margin requirements are even before you place ANY order.
3. Use stop loss orders or trailing stops to avoid margin calls.
4. Scale in positions rather than entering all at once.
5. Know WTH you are doing as a trader.

A stop out in Forex usually happens at the 50% margin level. In real numbers, it means that the funds on the account are half the size of the funds taken by the broker. And at this point, the positions will be closed automatically until the margin level goes above 50%.

For the MT4/5 platforms a margin call occurs when equity on the account falls below 90% of the margin required for maintaining your positions and an automatic stop out will occur when account equity falls below 20% of the margin required for the trades.

By definition, day traders only hold their investment positions for a single day. Closing out at the end of the day is important for a few reasons: Margin rates — the interest rates paid on money borrowed for trading — are low and in some cases zero for day traders, but the rates go up on overnight balances.

A day trader will buy and sell a security between market open and close. Each day trader will hold for different durations because not everybody trades the same strategy. I personally am a scalper and my average hold time is 1 to 2 seconds, whereas many of my online trading buddies hold for 5 minutes to 15 minutes.

The reasons not to hold day trades overnight include: You put yourself into a great risk of market opening gap. Your stop loss order cannot protect you from that gap. Your broker will charge you an extra fee for leaving an open trade overnight.

The overnight limit is the maximum net position in one or more currencies that a trader is allowed to carry over from one trading day to the next. A central bank, treasury, or forex broker may impose overnight limits on a trader or dealer of currencies.