Part 11: Margin Trading

Welcome back to The Apricot Investor’s Glossary series! We’ve already explored some of the basic words and concepts of the investment world. Today, we’ll delve into a slightly more advanced concept – margin trading.

Margin Trading – Borrowing to Grow Your Garden

Imagine you see an opportunity to expand your garden, believing that certain “seeds” (stocks, ETFs, or other investment instruments) have the potential to yield your desired fruit (returns). You could patiently save up to buy more “seeds” when you have the means, or you could borrow to accelerate the process. Margin trading is like taking out a loan: you’re borrowing money to buy more “seeds” for your investment garden.

How It Works

Margin trading allows you to use your broker’s money (in this case, Apricot Capital’s) to invest in additional securities. This “borrowed” money is called “margin.”

At Apricot Capital, margin trading is available for specific investment instruments. The amount you can “borrow” depends on the value of your existing assets in your brokerage account. These assets act as collateral (“guarantee”) for the used money.

Our system continuously monitors your portfolio’s performance. If the value of your assets falls below a certain level, the system will automatically close your position (sell some of your assets) to repay the borrowed amount. This protects both you and Apricot Capital from losses.

Pros and Cons

• Pros: Margin trading boosts your returns if your investments perform well. It also offers more flexibility and buying power. 
• Cons: Just as margin trading can magnify gains, it can also magnify losses. It’s a high-risk strategy that requires careful consideration and understanding. You’ll need to pay interest on the “borrowed” funds.

Grow Your Garden Wisely

This option is available for eligible investors and is reserved for advanced investors. If you’re considering margin trading, it’s crucial to:

• Understand the Risks: Be fully aware of the potential downsides and the possibility of losses.
• Start Small: If you’re new to margin trading, begin with a small amount and gradually increase it as you gain experience.
• Have a Plan: Set clear goals and risk limits before you start. Know when to cut your losses and exit a trade.
• Monitor Closely: Continually monitor your portfolio and the market. Be prepared to act if your investments decline.

Is Margin Trading Right for You?

Margin trading isn’t for everyone. It’s best suited for experienced investors who are comfortable with high risk and volatility. If you’re a beginner or risk-averse, it’s wise to stick to investing with your own capital until you’ve gained more experience.

It’s important to remember that investments are subject to market fluctuations and carry inherent risks. Consider your financial goals and risk tolerance before investing.

Apricot Capital is regulated by the Central bank of Armenia.

*The examples in this text are for illustrative purposes only. This does not constitute investment advice or a recommendation to buy or sell any specific investment instrument. The past performance mentioned in this text is not indicative of future results.