There are two mistakes that every investor absolutely cannot make: buying on margin and using market orders.
Buying on margin, or getting credit from a broker to leverage a stock position, may seem like a great way to boost profits, but Cramer called it “just plain dangerous.” He said you can’t take losses in these situations. Nor can you buy more as your stocks dip lower. And once you’re too deep in the red, the margin calls come in, forcing you to sell your position in order to cover what you owe.
“It’s simply not safe,” Cramer said. “Nobody needs the level of risk – nobody – that margin gives you.”
A market order, which is telling your broker to buy or sell a stock without naming a price, can cost you, too. Because you’re basically telling your broker to fill your order at any price. As Cramer pointed out, you wouldn’t do this at a supermarket – I’ll buy this lettuce at any price? – so don’t do it with stocks.
-Mad Money
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