3 Business Terms You Must Know – Lesson 2: Trade stocks on margin | Tangible assets | Accounts Receivable | What is meant by trade stocks on margin? What is a tangible asset? What is account receivable?
What is meant by trade stocks on margin? What is a tangible asset? What is account receivable? The Inquisitive Learner had started a series of articles wherein it attempts to define/ explain, in the most lucid manner, 3 business terms that you must know. These articles would equip the readers with insights into business jargon – 3 at a time – so that eventually, their business understanding increases over time. So, let’s continue with our 2nd post in this series i.e. “3 Business Terms You Must Know – Lesson 2: Trade stocks on margin | Tangible assets | Accounts Receivable”.
1. What is meant by trade stocks on margin?
Trade stocks on margin:
To trade stocks on margin refers to the practice of using borrowed funds from a stockbroker to trade in the stock market. For example, let’s say you have only 100 USD to trade (or buy a stock for a day) out of your own pocket. However, if you decide to trade on margin, your broker may allow you to get 1000 USD from his account for you to trade if he offers a 10x leverage. Thus, the more the leverage given by your broker, the more would be your margin, and the more could be your profit or loss by virtue of the increased amount of money you have for your trading. Imagine that you could earn 10 times more in profit in this particular example if you win, however, also be cautious that you might make a 10 times loss too if the trade doesn’t go in your favor. No matter if you make a profit or a loss, you’ll have to return the borrowed money back to the broker at the end of the day.
2. What is a tangible asset?
To understand this let us understand the meaning of the word tangible first. Tangible is anything that can be touched or easily seen or easily recognized. Thus, Tangible assets are a company’s physical assets (such as offices, equipment, inventory, factories, etc.) as well as its financial balances (like cash and accounts receivable). Some examples that are not tangible assets are brands, copyrights, patents, goodwill, and trademarks, etc.
3. What is account receivable?
Accounts receivable is a legal claim for payment held by a business for goods and/or services rendered that customers have ordered/used but have not paid for. Accounts receivables are expected to be paid within a short amount of time, often 10, 30, or 90 days. These are generally in the form of invoices raised by a business and delivered to the customer for payment within an agreed time frame. Accounts receivable is often shortened as AR or A/R.
P.S.: Ensure to check out our 1st article in this series here to increase your business acumen.
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