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Winning margins: Nick Sudbury discovers that trading on margin allows investors who are comfortable with the risks to dramatically increase their potential returns.(Margin trading)

Buying shares through a normal stockbroking account entails paying the full purchase price. By switching to a margined product, an investor can make their capital work harder and potentially earn a far greater return. For example, using a spread bet or contract for difference (CFD) it is possible to create the same exposure for less cash.

Trading on margin ties up less capital than the equivalent share purchase, yet the investor is still exposed to the same absolute profit and loss. This has the effect of magnifying the potential return--an effect known as gearing--since a two per cent rise in the Vodafone share price would be equivalent to a 20 per cent return on the ...

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