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Margin

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Dictionary Says

Definition of 'Margin'

1. Borrowed money that is used to purchase securities. This practice is referred to as "buying on margin".

2. The amount of equity contributed by a customer as a percentage of the current market value of the securities held in a margin account.

3. In a general business context, the difference between a product's (or service's) selling price and the cost of production.

4. The portion of the interest rate on an adjustable-rate mortgage that is over and above the adjustment-index rate. This portion is retained as profit by the lender.
Investopedia Says

Investopedia explains 'Margin'

1. Buying with borrowed money can be extremely risky because both gains and losses are amplified. That is, while the potential for greater profit exists, this comes at a hefty price - the potential for greater losses. Margin also subjects the investor to a number of unique risks such as interest payments for use of the borrowed money.

2. For example, if you hold futures contracts in a margin account, you have to maintain a certain amount of margin depending on how the market value of the contracts change.

3. Gross profit margin (which is the difference between revenue and expenses) is one measure of a company's performance.

4. The formula for calculating the interest rate on an adjustable-rate mortgage is the adjustment-index rate (e.g. Treasury Index) plus the percentage of the margin. For example, if the Treasury Index is 6% and the interest rate on the mortgage is 8%, the margin is 2%.

Related Definitions

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    Broker's Call

    The interest rate charged by banks on loans made to broker-dealers, who use these loan proceeds to make margin loans to their clients. These broker's call loans are payable by the ...
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  • Buying Power

    The money an investor has available to buy securities. In a margin account, the buying power is the total cash held in the brokerage account plus maximum margin available.Also referred ...
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  • Call Loan

    A loan provided to a brokerage firm and used to finance margin accounts. The interest rate on a call loan is calculated daily. The resulting interest rate is referred to as the call loan ...
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    • Adjustable-Rate Mortgage - ARM

      A type of mortgage in which the interest rate paid on the outstanding balance varies according to a specific benchmark. The initial interest rate is normally fixed for a period of time ...
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    • Non-Marginable Securities

      Securities that cannot be purchased on margin at a particular brokerage or financial institution. Some classes of securities, such as recent initial public offerings (IPOs), ...
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    • Initial Margin

      The percentage of the purchase price of securities (that can be purchased on margin) that the investor must pay for with his or her own cash or marginable securities. Also called the ...
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    • Treasury Index

      An index based on the auctions of U.S. Treasury bills, or on the U.S. Treasury's daily yield curve. It is commonly used in determining mortgage rates for mortgages with an unfixed ...
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    • Maintenance Margin

      The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and NASD, after an investor has bought securities on margin, the minimum required ...
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    • Margin Call

      A broker's demand on an investor using margin to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin. Margin calls occur ...
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    • Margin Account

      A brokerage account in which the broker lends the customer cash to purchase securities. The loan in the account is collateralized by the securities and cash. If the value of the stock ...
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    • Minimum Margin

      The initial amount required to be deposited in a margin account before trading on margin or selling short. For example, the NYSE and the NASD require investors to deposit a minimum of ...
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    • SPAN Margin

      Short for standardized portfolio analysis of risk (SPAN). This is a leading margin system, which has been adopted by most options and futures exchanges around the world. SPAN is based on ...
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