Margin in Investing
📈 Investing
Quick Definition
Margin in investing refers to borrowing money from a broker to purchase stock, allowing investors to buy more shares than they could with just their available funds.
Formula
Margin Requirement = (Price of Security × Number of Shares) / Margin RatioExamples
- 1An investor with $5,000 in their brokerage account might use margin to buy $10,000 worth of stock, effectively doubling their purchasing power.
- 2During a market downturn, an investor might receive a margin call, requiring them to deposit more funds or sell some of their assets to maintain the minimum margin requirement.
- 3Investors might use margin to leverage their positions in hopes of amplifying returns, but this also increases the potential for significant losses.
Tags
margininvestingleveragestocksrisk management
Related Terms
Other terms you might find helpful
Margin Call
A margin call occurs when the value of an investor's margin account falls below the broker's required amount, prompting the investor to add funds or securities to meet the minimum margin requirement.
Stock Market
The stock market is a collection of markets where stocks (shares of ownership in businesses) are bought, sold, and issued, reflecting the economic trends and the performance of companies.
Quick Info
Category:Investing
Difficulty:intermediate
Last Updated:6/20/2025