From L.B.: “I would like to get rich quick. I have a little spare money to gamble. I heard that margin trading can make a mountain of dough out of my little molehill of cash. Any experience in this?”

Yes. My experience is that you will lose your money.

The leverage you get with borrowed money does increase potential returns. (Buying out-of-the-money puts and calls increases it still further.) The more leverage you reach for, the greater the pot of gold you have an outside chance of winning – but the more outside that chance becomes. Sooner or later, you will in all likelihood lose it all, because even gamblers who do win rarely quit while they’re ahead.

 

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