Margin

When you borrow money to purchase securities, it is referred to as buying on margin.  It is also referred to as using leverage.  Buying on margin for a novice investor is a very dangerous situation as you increase your potential gain and potential loss exponentially.  As a result, beginning traders should NEVER use margin.  I repeat novice traders should NEVER use margin.  What is the definition of a beginning trader?  It is someone who is a full-time (ie. everyday) trader for less than a 2 years while being profitable for their second year or a part time (i.e. swing trader or investor) for at least 5 years while being profitable for years 4 and 5 of that time frame.  If you do not meet these criteria, don't use margin as it will only accelerate your losses.

If you meet the above criteria to be considered an experienced trader, you should only use it on your very best trading ideas (ideas with high Reward to Risk Ratios) and it should be used with tighter than normal stops.  The reason for this is that using margin increases your risk and your job as a trader is to control/minimize your risk.

Also to reduce your risk, your should never use margin on a position you are holding over night.  There is too much risk.  What happens if the stock releases bad news in the pre or post market and you cannot get out because of liquidity or because you are unaware of the news because you are not watching your stocks every day.  Instead of using margin, buy options as this way you get the leverage of margin but you limit your downside to only the purchase price of the option.