📚 Stock Market Glossary
Clear, beginner-friendly explanations, real-world analogies, and visual formulas for key stock market terminology.
Margin Trading & Credit Purchase
Trading & Market💡 Key Takeaway: Leveraged stock purchasing using borrowed broker funds, comparing ultra-short 3-day margin with multi-month credit loans.
Short Credit vs. High-Interest Loan: Margin Trading is like a 3-day bar tab, whereas Credit Purchase is taking a high-interest bank loan to buy assets.
😎 10-Second Show-off Pro Tip for Friends!
😎 Show-off Tip: Say, 'High margin debt ratios leave stocks vulnerable to cascade forced liquidations during sudden market dips.'
📖 Beginner-Friendly Explanation
STEP 1
Core Concept & Meaning
Margin Trading and Credit Purchasing involve buying stocks on leverage using broker loans.
STEP 2
Why It Matters & Mechanism
- Margin Trading (T+2): Requires a fraction of cash deposit (30-40%), requiring full settlement within 3 business days to avoid forced liquidation.
- Credit Purchase: Borrowing capital over extended months at high margin interest rates (8-10% annually).
STEP 3
Practical Investment Tips & Pitfalls
If share prices fall below required maintenance margin thresholds, brokers initiate forced liquidations.
📊 Collateral maintenance ratio and reverse sale occurrence formula
Collateral maintenance ratio (%) = (Evaluated amount of stocks held ÷ Total loan amount borrowed) × 100
▶ If the collateral maintenance ratio falls below 140%, forced counter-selling occurs at the start of the market the next day
⚖️ Key Comparison at a Glance
| Category | Margin Trading | Credit Purchase |
|---|---|---|
| Repayment Deadline | Ultra-short 3 business days (T+2 payment) | 1 month to 9 months (extendable) |
| Interest Cost | None (However, if payment is not made, overdue interest will accrue) | As high as 7% to 10% per year |
| Forced anti-trading | Occurs immediately if payment is not made within 3 days | Occurs when collateral maintenance ratio (140%) is below |
📌 Practical Market & Real-World Example
A sudden market plunge triggered $100M in margin calls, causing cascade liquidations at market open.