investing

4 tips for buying stocks with 'play money'

Decide if the risks are too great
Do your research before buying © Olga Danylenko/Shutterstock.com

One sign that the public's appetite for stocks is rebounding is the increase in margin loans.

People can often get a loan from their brokerage, using their current account as collateral and taking money out to play the market.

At the end of the 2013 third quarter, the New York Stock Exchange reported a record $401.2 billion in margin debt.

Gugle of Alpha Financial Advisors warns that borrowing to buy more securities in a play account isn't wise. If the value of the account dips to a certain level, part or all of the loan might need to be repaid, causing the investor to scramble for funds.

Likewise, Duffy says some options strategies involve borrowing, too. Employing debt is too dangerous a terrain for relatively novice investors to navigate, he says.

It's not just options, but even some exchange-traded funds, which might employ risky derivatives that "accelerate the price movement one way or another," Spero says. He warns: "People tend to get excited about trendy investments that they don't really understand and shouldn't be in."

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