How to buy on margin.

If you think the stock market will continue to bear fruit, you may be able to reap a bountiful harvest by buying equities on margin. But be careful. "Using margin to invest will raise your returns if stocks go up," says Tim O'Leary, a senior vice president at Waterhouse Securities, a New York-based discount broker, "but you'll also lose more if stocks fall."

Margin investors use money that's borrowed from their broker and pay interest rates pegged to the broker's "call rate," which can be found in daily newspapers. Last February, for instance, that rate was 6.5%. Most brokers charge investors between 0.5% to 2% above the rate, which means that the interest you pay on margin loans will usually be in the 7%-8.5% range. The lowest rates are reserved for accounts over $50,000.

Such loans are backed by securities held in your brokerage account, and the maximum "initial margin" allowable is 50%. That means you can borrow $50,000 if you have $100,000 worth of securities. For Treasury bonds held by your broker, the maximum initial margin is 90%.

These accounts can help bolster your potential profits. Assume you use margin to boost your holdings from $100,000 to $150,000. If your stocks rise 20% in the next 12 months, you'd have a $30,000 gain--20% of $150,000--as opposed to a $20,000 gain on a $100,000 portfolio. Even after you paid 7% interest--$3,500 on a $50,000 loan--you'd have $26,500 (before taxes) and, in turn, increase your total return by $6,500.

Although the Federal Reserve and the New York Stock Exchange set the basic regulations, each brokerage firm has its own set of rules. "We don't allow margin on securities we consider too speculative, less than $5 per share," says Steven Paraggio, CFO of Ernst & Co., a brokerage firm in New York.