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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 the loan.

Buying on margin requires a margin account with a broker, who then establishes the account’s maintenance margin, which is the minimum amount of equity that must be maintained by the investor in a margin account. An initial investment of at least $2,000 is required for a margin account, though some brokerages require more. This initial deposit is known as the minimum margin.

Once the account is opened and operational, you can borrow up to 50% of the purchase price of a stock.  

If the stock value drops below the maintenance margin, the investor must pay into the account to cover the difference. This is called a margin call. If the investor does not add money quickly enough, the broker can sell the stock without notice to cover the loan.

When you sell the stock in a margin account, the proceeds go to your broker against the repayment of the loan, and any remaining profit is yours to keep. 

Say you want to purchase 100 ZunRize (ZR) Stock with a price of $100 and your broker has a required initial margin of 50% and a maintenance margin of 20%. This means your broker requires you to initially pay $5,000 {Show formula dont read} ($100 * 100 * 50%)  and maintain the account with a value of no less than 20% of the equity provided. 

If the ZunRise stock value drops below the 20% maintenance margin, the broker would issue a margin call.

 

 

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