Over the past few weeks the volatility and downward trend of the share market has caused traders and investors alike to lose very large amounts of money not to mention sleep.For those traders who were prepared for such an eventuality, they lost very little of either. They would have lost around 5-10% whilst the average trader lost in the vicinity of around 20% if not more.The average investor was drawn to the last “Bull Run” like moths to a flame. Having unrealistic expectations of easy money plus they are also being influenced by the media hype which is prevalent in a high flying share market.The “Flavour of the Month” for quite a while has been Margin Loans. They are easy to set up. The paperwork is minimal as is the setting up costs. So you can be up and running in less than a . fortnight. The average amount borrowed is usually around the $100. 000 mark for which the potential trader has to put forward a fifth. In this case $20,000. But you can buy up to the full amount of the loan i. e. $100, 000 worth of stock. This is called leverage. Now leveraging is a two edged sword, you can make good profits but you can have big losses as well.The average investor who decides on a margin loan as a “Sure Fire” guaranteed quick way to make money invariably has neither the experience nor the knowledge necessary to cope with a sudden downturn in the stock market when it occurs.
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I don’t know about the pitfalls part of it, but I would never borrow money to buy shares. I rather not invest in that case.
I think borrowing to buy shares is a bad idea. In this manner, if you lose money in the market, then you’d increase your debts.
I have suffered a huge loss in the stock market. I have really burnt my fingers! I will never borrow money to buy shares again.
Share market trends are uncertain. To invest in it, strong mind is needed because if one can earn a lot then one can lose a lot too.