A margin account is a brokerage account that allows an investor to borrow money from their broker to purchase securities. The borrowed money, known as margin, increases an investor's purchasing power but also magnifies potential gains and losses, adding to the risk.
Margin Account
Definition
A margin account is a brokerage account that allows an investor to borrow money from their broker to purchase securities. The borrowed money, known as margin, increases an investor's purchasing power but also magnifies potential gains and losses, adding to the risk.
Example
An investor with $10,000 in a margin account might be able to buy $20,000 worth of stock, using $10,000 of their own money and borrowing $10,000 from the broker.
Key Points
- 1Allows borrowing money to buy securities.
- 2Magnifies both potential gains and losses.
- 3Subject to interest charges on the borrowed funds.
- 4Requires a minimum amount of equity to be maintained (margin call).
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