Options Trading Tutorial

what does this mean? Apply for margin and Apply for option trading?

I'm being asked the following while opening a broker account: Apply for margin within this account yes/no Apply for option trading with this account yes/no what does this mean?

Public Comments

1. Margin - Basically borrowing money to buy stocks. Options - Option to buy or sell a particular stock. The reason you are being asked is because for you to trade on margin or in options the broker must have your written authorization.
2. Options are the RIGHT to buy or sell a stock at a predetermined price. Margin is the ability to borrow money from the brokerage company to buy more stocks. Usually 50% of the value of your account is marginable. Both are EXTREMELY dangerous and you could lose a lot of money, not to mention your other assets (house, car, etc), and since you dont know what they mean, then answer NO. Good Luck ED
3. if you have no idea what they mean, you should say no to both it sounds like you should be investing in mutual funds which are much safer investing in individual stocks is very difficult I was a broker for 14 years so I know what I am talking about.
4. Margin: Allows you to borrow money from your broker to invest with the money you place into your account as collateral. This allows you to buy more stock than you otherwise could (ie if you place $1000 in a margin account you could buy 100 shares of a $15 stock, borrowing $500 from your broker.) If the stock goes up you make more money than you otherwise would because you own more stock. However you lose more if the stock goes down (for example if the stock in the example drops to $5/share you would lose 100% of your investment because you'd only have $500 left and you'd owe your broker $500.) You also have to pay interest on money borrowed for trading, so I would suggest that you not enable margin. Options: A stock option is an agreement made to buy or sell shares of stock to another investor at a certain price on or before a certain date. Buying options on stocks is very risky--however you might consider selling options on stock you already own (which is generally a level I options authorization). I doubt a broker would give you a higher authorization if you're just starting to invest. Look up 'covered calls' for an in depth explanation of what I'm talking about.