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What is a Margin Call? (Day Trading for Beginners) - YouTube
Channel: ClayTrader
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ah the good old margin call have you
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ever heard this term and you're not
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quite sure what exactly it is being
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referred to let's talk about it to start
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things right out the gates with some
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context the only way you as a trader
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would ever need to think or worry or
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focus or even have as a possibility as a
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trader of a margin call is well you
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would need a margin account there are
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two types of accounts out there there's
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a cash account and a margin account so
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if you have a cash account then this is
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more of just hey FYI for you because
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this would literally never happen to you
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based on your account type again two
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types margin account and cash account
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now if you do have a margin account what
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is exactly a margin call well first off
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I want to focus on the word call who
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exactly is calling you what exactly is
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occurring now a call does that mean you
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get a phone call or anything like that
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it could in some situations but this is
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first off just coming from your broker
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so whoever your broker is whoever has
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your account they're making a call to
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you again not necessarily in the sense
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of picking up a phone and calling you or
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texting you or anything I'd assume you'd
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get some sort of email in some cases
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again depending on brokers and their
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policies they very well may call you but
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why are they calling you what is the
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purpose of the call the purpose of the
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call the reason why the broker is
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getting a hold of you or you know taking
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a form of action and I'll get to that
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form of action is because your risk let
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me pull on the code color here it's just
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totally out of control and I'll
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highlight that by red so what do I mean
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by risk being out of control so let's
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just say cuz this is where it most
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commonly occurs but you have gone short
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a position now if you don't know what
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going short is or now that I think but
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if you're not even sure what a margin
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account is I've done videos on those
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I'll put those down below and you can go
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back watch and listen to those watch
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them and come back and watch this but
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doing short in a nutshell just means you
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were making money when prices go down
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the risky part of short selling though
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is because a price can ferret
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we go - forever your risk the amount of
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money you lose is also unlimited because
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a price can go up and up and up forever
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whereas on the flip side a price can
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only go down as far as zero so in some
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situations and we're margin calls what
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happened let's just say that this
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represents your entry point and again
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you're on the short side meaning you
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want the price to go down and that's how
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you make money meaning if the price goes
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up you are losing money so at some point
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and this is all going to be based off of
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so let me do that so that's your entry
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and this is again I'll highlight this in
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red that is the area where your broker
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is going to say whoa whoa whoa whoa your
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rip what is going on with your risk
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because your risk is going to fall upon
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your broker because as a quick teaser
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for that you know what is a margin
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account a margin you know a trade is
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essentially alone there's a loan dynamic
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going on and because there's a loan
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dynamic going on the person making the
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loan your broker is taking on different
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forms of risk meaning that they are
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gonna have systems in place to make sure
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that the risk doesn't get too far out of
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control and this is another form for all
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that so let me change up the colors here
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again this area up here so the asterisk
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is margin and maintenance sometimes
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referred to as you know more maintenance
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requirements margin requirements there's
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various forms and I'm not going to get
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into what they actually are because
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everybody's gonna have slightly
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different requirements in terms of when
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a margin call
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however risk is being defined is gonna
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play out now there are some Universal
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rules but as a whole you know it's one
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of those things where if you get a hold
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of a broker and let in us some hey what
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are your margin requirements what are
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your rules regarding margin and main
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margin calls if they're like margin
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requirements margin couple what you're
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gonna want to find another broker
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because those are very basic terms that
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anybody and the customer support world
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from a broker's going to understand of
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course they're all going to be at their
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website and stuff as far as you know
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Marc margin maintenance and margin
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requirements and all that so those terms
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are universal and you know every broker
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that's what you would want to ask that's
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the terminology you would want to use in
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order to figure out kind of where how
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does this all work in regards to that
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loan of margin but going back to our
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example there and what would actually
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trigger the call is at some point like I
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said you get in here and the price goes
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up and the price goes up and the price
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goes up because losses like I said are
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theoretically unlimited if the price
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hits right there and you're still in for
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it out let's just say you're being
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stubborn it nope I'm not going to get
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out nope I'm not going to get out the
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price is going to go back down I'm not
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going to get back out eventually your
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broker is gonna call you because these
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maintenance these requirements have been
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hit and they're gonna call you and it's
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kind of a two-fold call like I said
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they'll get a hold of you in some form
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but the other form of action is they are
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gonna close down the trade meaning right
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there it is over they are taking you out
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of the trade and yes they are allowed to
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do that because well that's what you
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agree to as part of that you know margin
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agreement but the other reason they're
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allowed to is because I mean you are
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taking on way too much risk than what
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they are comfortable with and they're
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not if they just let that keep going and
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going and going
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eventually that creeps into them looks
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starting to lose money and then starting
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to take a big hit and they don't want
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that they want to stay in business so
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they need to make sure that all these
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things are accounted for via you know
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the margin maintenance and the margin
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requirements which are all explained to
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you and that's you know what exactly is
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what well that's gonna depend on how big
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your account is what exactly you're
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trading and there's things that go into
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it but at the core and what you know
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this is just a one-on-one video is what
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does the margin call it's essentially
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your broker ending the trade for you if
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you get too stubborn or you get fill in
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the blank but for whatever reason if a
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price goes too far against you your
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broker is gonna just end the trade
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they're gonna do a margin call on you
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and that means game over you've taken
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the loss it's all out of your control in
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the sense of you can't stop and say no
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no no no no they're gonna either say
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well put more money into your account so
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that you can bounce back
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this risk or we are we are definitely
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closing the trade and that's how a
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margin call works so you ever hear that
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term let's put it this way if somebody's
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getting margin called
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on them that's not good that is not what
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you want your goal as a trader is to not
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have margin calls because when margin
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calls occur you know in the dressage
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situations
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that usually means something has gone
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wrong quite a bit but that is what it
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over all means just simply your broker
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ending a trade for you if you are out
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there trading alone currently and maybe
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are in the market looking for a
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community to join to assist you in your
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trading or to just help you you don't
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give you another set of eyeballs then I
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do have a private trading community
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where you can trade alongside me and
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other experienced traders so what you
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see popping up on the screen right now
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is both an information link so if you
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click on the inner circle one that is
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going to take you to the page where I
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explain all the details of what exactly
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come with the community both the
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chatroom and the newsletter and then the
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other image that is popped up is a
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behind-the-scenes tour where you can see
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exactly what is going to you know be
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contained within the community I take
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you through like I said
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behind-the-scenes tour of everything and
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that way you'll know precisely what you
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are getting you know when you join so
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definitely check that stuff out if you
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are interested and thinking about you
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don't want it to join a community and
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let me know if you have any questions
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