Buying on margin is the purchase of an asset by paying the margin and borrowing the balance from a bank or broker. Buying on margin refers to the initial or down payment made to the broker for the asset being purchased; the collateral for the borrowed funds is the marginable securities in the investor's account.

Before buying on margin, an investor needs to open a margin account with the broker.

Based on creditworthiness and other factors, the broker sets the minimum or initial margin and the maintenance margin that must exist in the account before the investor can begin buying on margin. Maintenance margin refers to the minimum amount of money that must exist in the account before the broker forces the investor to deposit more money.

When this happens, the broker calls the investor and demands that the investor bring his balance back to the required maintenance margin level. The investor can do this by depositing additional cash into his brokerage account or by selling securities that he purchased with borrowed money. Buying on margin offers investors some definite benefits, but the practice is also fraught with risk.

Buying Power

Using this kind of leverage to purchase securities with someone else's money amplifies gains when the value of those securities increases, but it magnifies losses when the securities decline in value. Dictionary Term Of The Day.

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Buying On Margin

Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. Buying On Margin Share. Margin Call Maintenance Margin Initial Margin Margin Account Margin Minimum Margin Option Margin Variation Margin Margin Debt.

Margin Trading: What Is Buying On Margin?

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