A lot of people want to earn money fast. The only way you can earn a lot of money fast is by winning the lottery or gambling. Baoth of these options are not secure, and it’s much more likely to lose than to win. Gambling institutions were created with the intent to sell you a fake idea of winning, and there’s a lot of psychology included.
The well-paved way to wealth is long. The fastest way to get a lot of money with investing is at least a decade or two. Without that timeframe, there’s no room for compounding interest to get going.
However, there is a select group of people that want to use leverage and margins when it comes to investing. If you’re not an expert investor with decades of experience, using margin trading and leverage can cost you a lot of money and can be equated with full-blown gambling. Here is how both of those processes work.
Leverage
This is the process that can help you greatly enhance your gains. There are a few individuals that are completely educated on the subject, know how to follow market trends, and can use the appropriate tactics to turn the tides in their favor.
If you’re a newbie, then investing with leverage will add a lot of risks that you don’t want to have. You can have catastrophic losses right at the start. That’s because as soon as you add leverage, you’re adding risk. Here’s how that works. When you’re buying something on a margin, you’re fighting against a mathematical equation.
The rules of mathematics can never bend, and you can only win if you learn how to swim with the tide and follow the waves. Compounding fees are stacked against you, and that’s especially true about futures contracts. If you don’t know what you’re doing, then margin trading can be much worse than a high-stakes poker game with an opponent that’s a professional.
Another great mental image to have in mind is a duel with an 18th-century professional duelist. There are professionals that are looking to find the little guy that comes as a novice. They know the numbers and the odds, and they can’t wait to see you put money on the table. Click here to read more.
That’s because they’ve studied statistics for their entire lives, and on the other hand, you barely know the rules of the game. It’s not just individuals that like to use leverage. That would make the investing game much more equal. Instead, there are massive hedge funds that want to control the odds.
Buying precious metals on a margin
Trading on a margin might seem to you like an easy game to play. You either win, or you lose. Well, this is the branch of investing that’s most keen on gambling. It’s like wielding a sword with two edges, and you can either hurt your opponent or yourself.
However, the side that points to your opponent is dull, and the side that points towards you is sharper than a surgical knife. Here’s how it works. You don’t have enough money to buy a house. That’s why you put down a 20 percent down payment, and you own 20 percent of the house. As the value of the real estate market grows, the profits you earn pay for the rest of the house.
If the opposite happens, you lose equity on the property. As soon as that number goes below a set amount, a broker will come and foreclose the deal, and you’ll be left on the street. Margin trading is the same thing. Let’s say that you only have a hundred bucks. Then, you tell that to your broker, and they give you 400 dollars more to play around with.
Now, with just a hundred dollars, you can handle assets that are valued at 500. Now, let’s say that the price of gold increases by ten percent. Visit this Metals Resource for more information. Then, you will practically have 550 dollars, and 150 of those will be completely yours. The value of the asset has increased only ten percent, but your profits have gone up by half.
This makes you stand in a better position. This technique can be repeated a couple of times until you have complete control of the asset. That’s the positive outcome. On the other hand, let’s say that the opposite happens.
Let’s say that you’re starting with the same 500 dollars, and the price of gold goes down ten percent. Then, you’ll lose 50 bucks, and that will leave you controlling an asset that’s worth 450. When your stocks increase by 10 percent, you’re at three to one leverage.
However, when your stocks decrease by ten percent, you’re at nine to one leverage. See how the system is built to punish your mistakes? This can happen up to a certain point, and then your broker will give you a call and ask you to pay up. Of course, they’re going to include a hefty fee because they don’t do business for free. At that time, you will have 24 to 48 hours to pay everything back to an acceptable margin.
A few final words
In the world of investing, always make sure to spend as much as you can handle to lose. As soon as you have money that you can live without, place them into something stable like an IRA or an ounce of gold. Trading with investments is never a good idea.
