Stop being superstitious about margin financing and securities lending! I have personally stepped into the financial minefield.

Hey, have you heard of margin trading? That's right, it's the so-called "magical tool" that claims to help you turn your fortunes around. To be honest, I used to believe in this trap as well, and almost lost all my capital! Today, I want to share my perspective and openly discuss this financial tool that many investors love and hate.

Borrowing Money to Buy Stocks and Borrowing Stocks to Short Sell: This is the True Nature of Margin Trading

In simple terms, margin financing is when you borrow money from a broker to buy stocks. For example, I have my eye on a stock that costs 100 yuan, but I only have 40 yuan on hand, so I borrow 60 yuan from the broker to make the purchase. It sounds great, right? However, this money comes with interest!

And what about short selling? It is when you borrow stocks from a broker to sell. For example, if I think TSMC is going to drop, but I don’t have any stocks, I borrow stocks from the broker to sell, then wait for the stock price to drop and buy them back to return to the broker, earning the difference in between.

Both have a common point: both require margin payments. Financing usually requires 40% of the capital to be self-funded, while margin trading requires 90% of the margin to be prepared.

Who said this is just money making money? My painful experience

I remember last year I was optimistic about a certain tech stock and financed the purchase of 5 shares, thinking I would be able to make a profit soon. As a result, the market shook, and the stock price fell for five consecutive days. Not only did I lose money on the price difference, but I also had to pay financing interest every day! To make matters worse, when the stock price dropped to a certain level, the broker started urging me to add margin. At that time, I was cash-strapped and ultimately faced a forced liquidation, losing nearly six figures.

Indeed, this game is much more dangerous than it seems.

The Illusion of Financing: Thinking You're Amazing While Actually Walking a Tightrope

Many people are fascinated by margin financing because it can "amplify" investment results. For example, if Apple stock rises by 50%, you could gain 125% if you bought on margin. Conversely, if the stock falls by 50%, you could end up losing everything!

I must remind everyone that financing is definitely not suitable for long-term investment, especially for those who hold stocks.

1. Interest will eat away at your profits
2. Facing liquidation risk when stocks fall
3. The psychological pressure is immense, making it difficult to make decisions calmly.

Margin Trading: A More Dangerous Game

Short selling sounds more impressive, I can make money when the market goes down! But do you know? The risks of short selling are actually greater than those of margin trading:

1. Theoretically, losses are unlimited when stock prices rise.
2. Facing the risk of being trapped (large holders intentionally pushing up stock prices to force short sellers to cover)
3. There is a time limit, usually requiring forced buybacks before the ex-dividend date or shareholder meetings.

I once shorted a stock that I thought was overbought, but the company suddenly announced significant merger news, and the stock price surged by 15% in one go. I was forced to cover at a high point, resulting in heavy losses.

Taiwan's Unique Trap

In the Taiwanese market, there is a special risk associated with margin trading: the situation of "not being able to borrow stocks" often occurs, especially with popular stocks. You might think you can short sell to make money, but in reality, you can't borrow the stocks at all! Even scarier is that sometimes large investors intentionally borrow a significant amount of stocks in the market and then start to drive up the stock price, forcing those who have already shorted to buy back at a high point.

My Current Investment Perspective

After several painful experiences, my view is: margin trading is like a scalpel; it can save lives in the hands of a professional doctor, but it can harm both the user and others in the hands of an amateur. Unless you are a professional trader, it is best not to attempt it lightly.

If you really want to use it, remember the following points:

• You must set a stop-loss point.
• Capital management should only use 20-30% of total assets for margin financing.
• Pay attention to maintenance rate changes
• It is necessary to have sufficient cash on hand to cope with collection.

The most important thing is not to treat margin financing and securities lending as a tool for getting rich; they are merely highly risky financial leverage. Ultimately, investing depends on the company's fundamentals and your judgment of the market; there are no shortcuts.

On the investment journey, protecting your principal is much more important than temporary profits. Remember!