Which brings up another very important point new investors should know about. Margin vs cash.
In a cash account, you can only guy as much stock as you've got cleared funds to buy. Cleared funds (if I remember correctly) are funds deposited to your account 3 days after closing a position.
Margin, however, lets you borrow against stock you own, giving you the ability to buy more stock than you can afford. You borrow extra cash from the brokerage, using existing stock as collateral.
Trading on margin is a way to give yourself more buying power than you could afford with a cash account, potentially doubling your earning potential, but it's very, very risky.
If you buy a stock using all of your cash, then borrow money against it and spend all of that money buying another stock, if they both go down or the total value of one position decreases more than the other goes up, you're going to get a "margin call". A demand to deposit additional funds in your account.
Most of us have been there and it's not fun. You either have to send in more money or sell one or both stocks at prices you didn't want to. So you can make money twice as fast on margin but can also lose it twice as fast or faster. It's entirely possible to have an account wiped out to the point where you have no stock and owe the broker money. Ask me how I know. :( Which reminds me of something else. Don't let a broker manage your account for you if you're dealing with a lot of money. He could (as likely happened to me) have your account buy things at the highs to sell them out of his account and let you suffer the downside.
Margin, like a bank loan with collateral, can also be withdrawn from the brokerage for other purchases.
Also not a good idea. Seattle is full of homes that were paid for by borrowing money against GNET stock, then the houses had to be sold quickly as GNET/INSP tanked. Instances in which several hundred thousand dollars quickly evaporated and all the victims were left with was debt and Alternative Minimum Tax (AMT) bills many times larger than the amount of money they'd made.
Inexperienced investors shouldn't use Margin and experienced investors often won't.
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