OldGrantonian

Many thanks to SIUYA and Tams for their helpful responses It seems to me that both are saying the same thing. SIUYA says: Tams says: I think both are saying that if I have a MARGIN account with $1,000,000 in cash, then my "margin cash available" is $1,000,000, and my "buying power" is $2,000,000. If I now buy $10 of stock, the broker takes $5 in cash and lends me the other $5. (I'm deliberately using ridiculously high and low values.) This is the way that I would want my MARGIN account to operate. Because I think the market is low, I want to use margin for upside leverage, not because I need to borrow money. (As I said in my original post, I'll make damned sure in advance that I can meet any margin calls right down to zero.) However, I was waiting quite a long time for a reply on this forum, so I made an identical post to: When is margin not margin? - Trade2Win Forums The reply was from John Forman, who wrote "The Essentials of Trading". He says that if there's enough cash to buy the required stock WITHOUT margin, then the broker takes out the cash, and lends you nothing. And that's exactly what I DON'T want. So, with the greatest respect, it seems to me that SIUYA and Tams are agreeing with each other, but disagreeing with John Forman. Maybe I'll experiment by opening a margin account with a tiny amount, say $500, then buy $100 of stock to see what happens. (My broker says I can open a margin account any time.) Thanks for all the help

I've been buying Dow stocks for about 2 years now, and doing OK considering the economic climate. With the markets so low, I want to try trading with a margin account, using only Dow stocks for safety (initially). I live in the UK. As preparation, I have set up a separate bank account in the UK to ensure that I can meet margin calls even if the prices of all my stocks drop to $zero. I would be grateful if someone could answer the following question. Scenario 1: 1) Assume that I open a margin account with $2,500 cash. I believe that this gives a "margin buying power" of $5,000. 2) I then buy $5,000 of stock. 3) Assume the stock doubles in value, and I sell all the stock. 4) According to all the web articles on margin, I make a profit of 4 times the initial cash outlay. Because I receive $10,000, but I only paid $2,500 in cash. Scenario 2: 1) Assume that I open a margin account with $5,000 cash (double the amount of Scenario 1). This now gives a "margin buying power" of $10,000. 2) I then buy $5,000 of stock (as before). 3) Assume the stock doubles in value, and I sell all the stock. 4) As before, I receive $10,000. So, my question is. Do I still make a profit of 4 times? Or is it only a profit of 2 times, because there was enough available cash initially to buy the stock? In other words, does the broker take the entire $5,000 in cash out of my account? Or does he only take $2,500 cash and lends me the other $2,500? I'm sorry if I've used a lot of words to ask one question, but I want to be absolutely sure. .