Buying on margin lets you invest with borrowed money, and it’s super risky


margin

Let’s say you want to invest in a stock that’s worth $500 a share, but you don’t have the exact amount you need to buy a single share. You might think that your only option here is to not buy that stock, but you couldn’t be more wrong.

One option you have is to invest in lower-cost index funds (like $SPY and $QQQ), which invests in that specific stock and hundreds of others. This lets you invest in a small fraction of your desired company while diversifying your holdings.

If you really want to own full shares in just that one stock, however, you can buy on margin. Buying on margin lets you invest without putting up all the cash up front.

To get an idea of how to buy on margin, Wall Street Survivor created this helpful cartoon to get you started. Just remember: like all investments, buying on margin comes with its fair share of drawbacks and increased risks.

If you want to invest and feel comfortable with “borrowing” from a broker to buy stocks on margin, consider working with your trusted investment firm or Robinhood to learn how to do so. If you don’t want to risk being on the hook for more money than you could potentially gain, you might want to keep stockpiling cash until you can afford to buy the stock yourself.