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Which Capital to Invest for a Trade?
The best advice here is to use a comfortable amount of capital.
Based on the US federal legislation, the brokerage firms are authorized by law to lend margin money to their customers up to a certain ceiling. You could then use this money for trading in addition to your own capital. Currently, the Maintenance Requirement for the US brokerage firms is 25 percent of traders' own capital in the account at all time. This means that whenever the amount of your own capital compared to the borrowed margin money drops below 25 percent, you will receive a margin call and the firms may liquidate part of your assets at their discretion to fill this requirement. In other words, with $10,000 of your own capital, you may purchase stocks for up to US$ 40,000, with a maximum of $30,000 of margin (borrowed) money. Should your position lose, you will become eligible for an immediate margin call anytime the account own capital is below $10,000. In other words, whenever your account has lost 25 percent, you lose your entire trading capital. Again, please use only a comfortable amount of money for trading, at least while on the learning curve of the MPS. Once you have mastered it and have a good record of success, you may wish to relax slightly this constraint and use a comfortable amount of margin.
Be aware that by using margin money, you become subject to major stress that, in the end, could lead to emotional trading and total loss of capital.
Become your own financial adviser and trade based on your own independent trend predictions and trading strategy -
not on untrustworthy, unreliable, and costly external advice.
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