Margin Account

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Borrowed Capital

    Funds borrowed from either individuals or institutions. Borrowed ...
  2. Call Deposit Account

    A bank account for investment funds that offers the advantages ...
  3. Margin Call

    A broker's demand on an investor using margin to deposit additional ...
  4. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  5. Initial Margin

    The percentage of the purchase price of securities (that can ...
  6. Cash Account

    A regular brokerage account in which the customer is required ...
RELATED FAQS
  1. How do you trade put options on E*TRADE?

    Learn all about put option trading at E*TRADE. Explore margin accounts and become familiar with the different types of option ...
  2. How is it possible to trade on a stock you don't own, as is done in short selling?

    Understand how the process of short selling allows a person to sell a stock he or she doesn't technically own by borrowing ...
  3. When short selling, how long should you hold on to a short?

    Explore the reasons for short selling and the various factors that influence how long an investor may wish to maintain a ...
  4. 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. ...
  5. 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. ...
  6. 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 ...
  7. 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 ...
  8. 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 ...
  9. 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 ...
Related Articles
  1. Active Trading Fundamentals

    Introduction to Margin Accounts

    Find out what your broker is doing with your securities when you invest on margin.
  2. Options & Futures

    Introduction To Single Stock Futures

    These contracts allow for easier shorting, and provide more leverage and flexibility than stocks.
  3. Mutual Funds & ETFs

    Shorting ETFs: Profit Or Peril?

    Although more detail and attention may be needed, ETFs can be shorted - and at a great profit.
  4. Retirement

    The Best Way To Borrow

    There are many avenues from which to drum up funding. Find out the pros and cons of each.
  5. Options & Futures

    Margin Trading

    Find out what margin is, how margin calls work, the advantages of leverage and why using margin can be risky.
  6. Investing

    Ready To Invest In Financial Leverage Funds?

    Whenever you invest in a leveraged financial fund or are thinking about doing so, it's important to know the risks that could weigh on its returns.
  7. Investing Basics

    What is the Stock Market?

    A stock market is where shares in corporations are issued and traded. Stock markets are key components of a free market economy.
  8. Investing

    Commercial Paper

    Commercial paper is a short-term debt security issued by financial companies and large corporations. The corporation promises the buyer a return, or profit, for making the loan. The return is ...
  9. Investing

    Buying on Margin

    When an investor buys on margin, he or she pays a portion of the stock price – called the margin -- and borrows the rest from a stockbroker. The purchased stocks then serve as collateral for ...
  10. Brokers

    Arbitrage Opportunities in Spread Betting

    While the opportunities are few and far between, investors may use arbitrage to take advantage of price differences in financial spread betting.

You May Also Like

Hot Definitions
  1. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  2. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  3. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  4. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  5. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  6. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
Trading Center