Buying on margin refers to buying shares of a stock with borrowed money. Investors can make money trading on margin by generating a higher rate of return on their investments than the interest rate charged on the borrowed money. However, if the investment loses money, or does not make enough to cover the interest costs, the investor may lose a significant amount of money by trading on margin. To figure the percentage loss when buying on margin, you have to account for the gain or loss of the investment and the interest charged.
1. Subtract the beginning value of the stock from the ending value of the stock to find the gain or loss. For example, if you bought $8,000 worth of stock, and sold it one year later for $7,500, subtract $8,000 from $7,500 to get a loss of $500.
2. Calculate the interest paid on the margin portion by multiplying the annual interest rate by the amount borrowed by the number of years you held the stock. For example, if you purchased $8,000 worth of stock on margin, held it for one year and the annual interest rate equals 6 percent, multiply $8,000 by 1 by 0.06 to find the interest charges equal $480.
3. Subtract the interest owed from the gain or loss to find your gain or loss after accounting for interest. In this example, add the losses of $480 and $500 to find a total loss of $980.
4. Divide the loss by the starting value of the investment to find the percentage loss of your margin trading. In this example, divide -$980 by $8,000 to get -12.25 percent, or a loss of 12.25 percent.
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