Passive Income Definition

Meaning and Definition

Passive Income is income that accrues to a person without carrying on of active vocation or profession or the expenditure of any physical or mental labor or time. Passive income is the antonym to ‘active income’, which requires carrying the person’s active engagement and exertion.

Passive income can accrue to a person from two sources:

1. Inheritance
2. Investments

For a majority of us, only sustained, prudent and significant investments can result in the creation of adequate passive income to liberate us from the drudgery of the necessity to work for a living, which is called ‘financial freedom’.

Examples:

Examples of passive incomes are:

• Rent
• Dividend
• Interest
• Royalty

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Margin Trading Definition

Meaning and Definition

Stock prices constantly fluctuate in the stock markets. A number of Speculators called day-traders try to make a living out profits from these minor price variations. Since the price differences within a day are small, profit from such variations is insignificant after adjusting brokerage and other transaction cost. Therefore the stockbrokers extend them a temporary loan, a few times the own investment (margin) of the trader, enabling the value of trade to be enhanced many times, thereby enhancing the profit into a meaningful sum.

Margin trading is a double-edged sword. As it has the potential to enhance a small profit many times, it equally magnifies a small loss many times more!

In fact the loss is not just restricted to the price difference but includes twice the broker's fees, both on sale and purchase.

Example:

Margin Trading Example