Margin Account

DEFINITION of '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 drops sufficiently, the account holder will be required to deposit more cash or sell a portion of the stock.

BREAKING DOWN 'Margin Account'

In a margin account, you are investing with your broker's money. By using leverage in such a way, you magnify both gains and losses.

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RELATED FAQS
  1. How do hedge funds use leverage?

    Hedge funds use several forms of leverage to chase large returns. They purchase securities on margin, meaning they leverage ... Read Full Answer >>
  2. How does a broker decide which customers are eligible to open a margin account?

    Brokers have the sole discretion to determine which customers may open margin accounts with them, although there are regulations ... Read Full Answer >>
  3. What is the interest rate offered on a typical margin account?

    Interest rates on margin accounts vary according to the size of the loan and the brokerage firm being used. Generally, interest ... Read Full Answer >>
  4. How much can I borrow with a margin account?

    An investor with a margin account can usually borrow up to 50% of the total purchase price of marginable investments. The ... Read Full Answer >>
  5. What does it mean when I get a Fed margin call?

    Understanding fed margin calls and how they affect your trading account is part of investing basics. A margin account allows ... Read Full Answer >>
  6. How do I change my strike price once the trade has been placed already?

    The strike price of a bought or sold option cannot be changed once that option is traded. Rather, the strike price of the ... Read Full Answer >>
  7. How exactly does buying on margin work and why is it controversial?

    Buying on margin is an investment strategy that allows investors to leverage cash or securities held within a margin-approved ... Read Full Answer >>
  8. How do you trade put options on E*TRADE?

    To trade put options with E-trade it is necessary to have an approved margin account. Investors may sign up for margin accounts ... Read Full Answer >>
  9. How is it possible to trade on a stock you don't own, as is done in short selling?

    Short selling is essentially a buy/sell transaction in reverse. The stock shares that the seller wishes to sell are borrowed ... Read Full Answer >>
  10. When short selling, how long should you hold on to a short?

    An investor should hold a short sell position for as long as the investment is profitable and as long as the investor can ... Read Full Answer >>
  11. How does margin trading in the forex market work?

    When an investor uses a margin account, he or she is essentially borrowing to increase the possible return on investment. ... Read Full Answer >>
  12. What does it mean when the shares in my account have been liquidated?

    An account liquidation occurs when the holdings of an account are sold off by the firm in which the account was created. ... Read Full Answer >>
  13. When short selling a stock, how long does a short seller have before covering?

    There are no general rules regarding how long a short sale can last before being closed out. A short sale is a transaction ... Read Full Answer >>
  14. Why do you need a margin account to short sell stocks?

    The reason that margin accounts and only margin accounts can be used to short sell stocks has to do with Regulation T, a ... Read Full Answer >>
  15. What is a margin account?

    A margin account is an account offered by brokerages that allows investors to borrow money to buy securities. An investor ... Read Full Answer >>
  16. What are the minimum margin requirements for a short sale account?

    In a short sale transaction, the investor borrows shares and sells them on the market in the hope that the share price will ... Read Full Answer >>
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