Margin Debt

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DEFINITION of 'Margin Debt'

1. The dollar value of securities purchased on margin within an account. Margin debt carries an interest rate, and the amount of margin debt will change daily as the value of the underlying securities changes.

2. The aggregate value of all margin debt in a nation or across an exchange.

BREAKING DOWN 'Margin Debt'

1. When setting up a margin account with a stock brokerage, the typical maximum for margin debt is 50% of the value of the account. In order to prevent a margin call (a request to raise collateral in the account), the margin debt must remain below a specified percentage level of the total account balance, known as the minimum margin requirement.

Not all securities are available to be purchased with margin debt, especially those with low share prices or extreme volatility. Different brokers have different requirements in this area, as each may have its own list of marginable securities.

2. Margin debt levels, and their rate of change, are sometimes used as an indicator of investor sentiment because margin debt rises when investors feel good about the prospects in the stock markets. In the past, margin debt levels have peaked at the same time market indexes reached relative peaks. When markets decline in a hurry, a large number of margin calls will usually come due, which can add to already heightened selling pressure.

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RELATED FAQS
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    A margin account is an account offered by brokerages that allows investors to borrow money to buy securities. An investor ... Read Full Answer >>
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    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
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    Brokers have the sole discretion to determine which customers may open margin accounts with them, although there are regulations ... Read Full Answer >>
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    There are many exchange-traded funds (ETFs) that track the retail sector or elements of the retail sector, and some of those ... Read Full Answer >>
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    Interest rates on margin accounts vary according to the size of the loan and the brokerage firm being used. Generally, interest ... Read Full Answer >>
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