Leverage and Equities by J.M. Malley
Here's how to find the appropriate leverage for stock trading and researching leverage with a simulated portfolio.
Deep discount brokerages are competing actively for customers, reducing commissions drastically and cutting margin rates. Obviously, the direct savings are valuable to active traders. Less obviously, the reduced fees could alter a trader's use of leverage. In this article I'm going to develop a technique for analyzing the use of leverage in common stock trading. I'm also going to demonstrate that reduced trading costs could make leverage attractive and profitable for the small trader. And finally, I'm going to show you how to use your own track record to make your own decision.